Contrasting Visions for Macroeconomic Theory: DSGE and OEE

2018 ◽  
Vol 65 (1) ◽  
pp. 28-50 ◽  
Author(s):  
Abigail N. Devereaux ◽  
Richard E. Wagner
Keyword(s):  
Economic System ◽  
Coordination Games ◽  
Dynamic Stochastic General Equilibrium ◽  
Macroeconomic Theory ◽  
Aggregate Properties ◽  
Ecology Of Games ◽  
Dynamic Stochastic ◽  
Macro Variables ◽  
Dsge Modeling ◽  
Jel Classifications

Dynamic stochastic general equilibrium (DSGE) modeling remains the workhorse of contemporary macroeconomics despite a growing number of critiques of its ability to explain the aggregate properties of an economic system. For the most part, those critiques accept the DSGE presumption that traditional macro data are primitive, causal data. This leads to a stipulative style of analysis where macro variables are explained in terms of one another. In contrast, we set forth an open-ended evolutionary (OEE) framework for an OEE macroeconomics. Within this framework, systems data are not primitive, but are derived from prior microlevel interactions without any presumption that those macrolevel derivations reflect systemic equilibrium among the microlevel primitive sources of action. We explore some contours of an OEE framework by placing coordination games within an ecological setting where there is no agent who has universal knowledge relevant to that ecology of games.JEL Classifications: B40, C73, D51, D85, E02

scholarly journals Sector-specific surprise and news shocks

2017 ◽  
Author(s):  
◽  
Ingul Baek
Keyword(s):  
Dynamic Stochastic General Equilibrium ◽  
Price Rigidity ◽  
News Shocks ◽  
Key Factor ◽  
Short Run ◽  
Dynamic Stochastic ◽  
Economic Boom ◽  
Macro Variables ◽  
Investment Goods ◽  
Two Sectors

I estimate the decomposition of total factor productivity (TFP) shocks by two sectors: (a) investment and (b) consumption. I also identify sectoral shocks by the timing of shocks realization, surprise shocks (unanticipated) and news shocks (anticipated), to investigate negative correlations among TFP in investment sector and macro variables. I find that surprise shocks to investment sector drive recession in short run. In contrast, positive comovements in response to TFP news shocks to investment sector immediately trigger economic boom. A two-sector DSGE (Dynamic Stochastic General Equilibrium) model confirms that price rigidity of investment goods is a key factor to generate the responses to the sector-specific TFP surprise shocks and news shocks as the empirical response: high rigidity for the surprise shocks and low rigidity for the new shocks. This result suggests that the model should adjust with the degree of the price rigidity depending on the surprise shocks or the news shocks.

scholarly journals CREDIT FRICTIONS, COLLATERAL, AND THE CYCLICAL BEHAVIOR OF THE FINANCE PREMIUM

2013 ◽  
Vol 18 (5) ◽  
pp. 985-997 ◽  
Author(s):  
Pierre-Richard Agénor ◽  
George J. Bratsiotis ◽  
Damjan Pfajfar
Keyword(s):  
Dynamic Stochastic General Equilibrium ◽  
Monetary Shocks ◽  
Loan Rate ◽  
Loan Spread ◽  
Dynamic Stochastic ◽  
Cyclical Behavior ◽  
Credit Frictions ◽  
Production Output ◽  
The Cost ◽  
Macro Variables

This paper examines the behavior of the finance premium after technology and monetary shocks in a dynamic stochastic general equilibrium (DSGE) model where borrowers use a fraction of their production (output) as collateral. We show that this simple framework is capable of producing a countercyclical finance premium, while matching the well-documented stylized facts of macro dynamics. A key feature is the endogenous derivation of the default probability from break-even conditions, which results in the loan rate being set as a countercyclical finance premium over the cost of borrowing from the central bank. The latter is shown to provide an accelerator effect through which shocks can amplify the loan spread and the dynamic response of macro variables.

Bayesian Estimation of DSGE Models

2015 ◽  
Author(s):  
Edward P. Herbst ◽  
Frank Schorfheide
Keyword(s):  
Monte Carlo ◽  
Sequential Monte Carlo ◽  
Likelihood Function ◽  
Academic Research ◽  
Dynamic Stochastic General Equilibrium ◽  
Computational Techniques ◽  
Dsge Models ◽  
Monte Carlo Techniques ◽  
Dynamic Stochastic ◽  
Theoretical Foundations

Dynamic stochastic general equilibrium (DSGE) models have become one of the workhorses of modern macroeconomics and are extensively used for academic research as well as forecasting and policy analysis at central banks. This book introduces readers to state-of-the-art computational techniques used in the Bayesian analysis of DSGE models. The book covers Markov chain Monte Carlo techniques for linearized DSGE models, novel sequential Monte Carlo methods that can be used for parameter inference, and the estimation of nonlinear DSGE models based on particle filter approximations of the likelihood function. The theoretical foundations of the algorithms are discussed in depth, and detailed empirical applications and numerical illustrations are provided. The book also gives invaluable advice on how to tailor these algorithms to specific applications and assess the accuracy and reliability of the computations. The book is essential reading for graduate students, academic researchers, and practitioners at policy institutions.

Financial Reforms and Consumption Smoothing

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Martin Boileau ◽  
Tianxiao Zheng
Keyword(s):  
South Africa ◽  
South Korea ◽  
Consumer Credit ◽  
Dynamic Stochastic General Equilibrium ◽  
Consumption Smoothing ◽  
Empirical Literature ◽  
Lower Income ◽  
Financial Reforms ◽  
Collateral Constraint ◽  
Dynamic Stochastic

Abstract We study how financial reforms affect the extent of consumption smoothing in a dynamic stochastic general equilibrium model of an emerging economy. Consistent with the empirical literature and reform efforts in South Korea and South Africa, we emphasize the relation between consumer credit and durable purchases, and model reforms as the relaxation of the collateral constraint on lower income households. We find that the relaxation of the collateral constraint accounts for a substantial share of the decline in consumption smoothing experienced in South Korea and South Africa.

Interactive effects between monetary policy and fiscal policy based on dynamic stochastic general equilibrium model

2020 ◽  
pp. 1-12
Author(s):  
Ying Xie
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
General Equilibrium ◽  
Equilibrium Model ◽  
Control Policy ◽  
Dynamic Stochastic General Equilibrium ◽  
Economic Effects ◽  
Interactive Effects ◽  
Supply Side ◽  
Dynamic Stochastic

From the beginning to the end, monetary policy has focused too much on the control of the supply side. At present, the single supply-based monetary policy is ineffective. Therefore, it is urgent to change the current single direct supply-side regulation and control policy and replace it with a non-single and indirect control policy that combines supply and demand. Based on machine learning algorithms, this paper constructs a monetary policy analysis model based on dynamic stochastic general equilibrium methods to analyze the interactive effects of monetary policy and other policies. Moreover, this paper uses the dynamic stochastic general equilibrium model to simulate and analyze the economic effects of fiscal policy. In addition, this paper compares the economic effects of monetary policy and other policies and conducts verification and analysis through actual data. The obtained results show that the model constructed in this paper achieves the expected effect.

THE INTERNATIONAL IMPACT OF MACROPRUDENTIAL POLICIES

2021 ◽  
Author(s):  
Doriane Intungane
Keyword(s):  
Equilibrium Model ◽  
Capital Requirements ◽  
Dynamic Stochastic General Equilibrium ◽  
Time Varying ◽  
Credit Growth ◽  
Cross Border ◽  
Macroprudential Policies ◽  
Dynamic Stochastic ◽  
The Impact

The recent financial crisis started a global debate on the role of financial policies, which led to financial system reforms in many countries. These reforms mainly consisted of increasing the usage of macroprudential policies. This dissertation seeks to understand whether macroprudential policies in financially integrated countries reduced their vulnerability to the impact of external shocks. Chapter 2 empirically examines the impact of macroprudential policies on cross-border bilateral credit growth. Capital requirements and loan-to-value (LTV) ratios, in 15 lending countries and 34 borrowing countries between 2000 and 2014, are used in the analysis. The results show that in some countries, the increase of capital requirements is not effective in reducing international credit flows during periods of financial vulnerability. The impact of tightening LTV ratios is more heterogeneous across countries because LTV ratios are mainly used in the housing sector and not all countries change their LTV ratio frequently. Hence, cooperation across countries is necessary but also countries should make sure that the change of macroprudential policies targeting lenders and those targeting borrowers complement each other to avoid international leakages. Chapter 3 analyzes issues related to the international spillover of macroprudential policies through international banking activities using a two-country dynamic stochastic general equilibrium model with heterogeneous and time-varying macroprudential policies. The results show that a combination of capital requirements and LTV ratios is effective in reducing credit growth despite the existence of cross-border banking activities and heterogeneous implementation of capital requirements across countries. In addition, international coordination of capital requirements is also effective in reducing credit growth but less effective than a combination of capital requirements and LTV ratios. Chapter 4 focuses on the role of countercyclical LTV ratios in reducing transmission of shocks when international investors, holding domestic and foreign assets, face collateral constraint. Using a two-country dynamic stochastic general equilibrium model, the analysis demonstrates that time-varying LTV ratios can reduce the transmission of shocks.

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