This paper studies the state-dependence of the output and welfare effects of shocks to government purchases in a canonical medium scale DSGE model. When monetary policy is characterized by a Taylor rule, the output multiplier (the change in output for a one unit change in government spending) is countercyclical but close to constant across states of the business cycle, whereas the welfare multi...

We take as a starting point the existence of a joint distribution implied by different dynamic stochastic general equilibrium (DSGE) models, all of which are potentially misspecified. Our objective is to compare ‘‘true’’ joint distributions with ones generated by given DSGEs. This is accomplished via comparison of the empirical joint distributions (or confidence intervals) of historical and sim...

This paper estimates the parameters of a stylized dynamic stochastic general equilibrium model using maximum likelihood and Bayesian methods, paying special attention to the issue of weak parameter identification. Given the model and the available data, the posterior estimates of the weakly identified parameters are very sensitive to the choice of priors. We provide a set of tools to diagnose w...

Economists have been coming up with business cycle models since the time of Smith, Ricardo, and Marx [5]. Most modern economists take Samuelson’s Multiplier-Accelerator model [12], and Keynes’ model of deficient demand as the starting points for modern policy debates, with the Real Business Cycle model and it’s ‘computable’ variant, the Dynamic Stochastic General Equilibrium model (DSGE), the m...

Whereas the bulk of the literature on DSGE models provides a rationale for in‡ation targeting strategies, there is no model doing such a job for the strategy implemented for almost ten years now by the Eurosystem and known as the "two-pillar monetary policy strategy". We try to address this issue by developping a small "two-pillar" DSGE model for the euro area. In this paper: 1) we allow real b...

Does economic theory help in forecasting key macroeconomic variables? This article aims to provide some insight into the question by drawing lessons from the literature. The definition of "economic theory" includes a broad range of examples, such as accounting identities, disaggregation and spatial restrictions when forecasting aggregate variables, cointegration and forecasting with Dynamic Sto...

What are the effects of financial market imperfections on the fluctuations in unemployment and vacancies in the labor market? Standard DSGE models are silent about this since they have not modeled unemployment directly. In this paper I augment a standard monetary DSGE model with explicit financial and labor market frictions. The financial frictions are modeled as Bernanke, Gertler and Gilchrist...

Purpose This paper aims to analyse the stabilizing macroeconomic effects of economic policies during COVID-19 crisis in Spain. Design/methodology/approach The contribution structural shocks that explain behaviour main aggregates 2020 are estimated, and simulated using a dynamic stochastic general equilibrium (DSGE) model estimated for Spanish economy. Findings results highlight importance suppl...