scholarly journals Decision between Public Investment and Public Consumption: A Policy Analysis

2020 ◽  
Vol V (I) ◽  
pp. 131-152
Author(s):  
Muhammad Raashid ◽  
Abdul Saboor ◽  
Aneela Afzal
Keyword(s):  
Public Investment ◽  
Policy Decision ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Structural Unemployment ◽  
Government Investment ◽  
Long Run ◽  
Public Consumption ◽  
Dynamic Stochastic ◽  
Best Fit

This study aims to draw a policy decision between public investment and public consumption by designing a Dynamic Stochastic General Equilibrium (DSGE) model for the economy of Pakistan which is experiencing persistent shocks that have stressed the growth pattern. The DSGE model has a microeconomic foundation and justifies locus critics by envisioning an artificial economy. The model is evaluated and set to best fit for data through an exercise of moment matching. Government consumption shocks and Government Investment shocks are used to trace out the behaviour of the economy. The analysis confirms that Pakistan economy could go for capital formation through public investment but it results in compromised public consumption and structural unemployment. It is further concluded that the export base and long-run public investment programs are needed to achieve sustainable development in the economy.

scholarly journals Do FDI and Public Investment Crowd in/out Domestic Private Investment in the SADC Region

2021 ◽  
Vol 19 (1) ◽  
pp. 3-25
Author(s):  
Eslon Ngeendepi ◽  
Andrew Phiri
Keyword(s):  
Capital Expenditure ◽  
Public Investment ◽  
Trade Openness ◽  
Government Expenditure ◽  
Private Investment ◽  
Policy Implications ◽  
Domestic Investment ◽  
Government Investment ◽  
Long Run ◽  
Short Run

Our study examines the crowding-in/out effect of foreign direct investment and government expenditure on private domestic investment for 15 members of the Southern African Development Community (SADC) for the period 1991–2019. The study employed the panel Pool Mean Group (PMG)/ARDL technique in estimating the short-run and long-run cointegration relationships between FDI, government capital expenditure and domestic private investment and adds three more variables for control purposes (interest rate, GDP growth rate and trade openness). For the full sample, FDI crowds-in domestic investment whilst government crowds-out domestic investment. However, in performing a sensitivity analysis, in which the sample was segregated into low and high income economies, both FDI and government investment crowd-in domestic investment whilst government expenditure crowds-out domestic investment in lower income SADC countries with no effect of FDI on domestic investment. Policy implications are discussed.

Modelling Monetary Policy

2021 ◽  
pp. 293-316
Author(s):  
Juan Antonio Morales ◽  
Paul Reding
Keyword(s):  
Monetary Policy ◽  
Policy Analysis ◽  
Policy Decision ◽  
Central Banks ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Models ◽  
Dynamic Stochastic ◽  
Policy Decision Making

This last chapter deals with the toolbox that central banks use to design and implement their monetary policy strategy. Central banks develop various types of model, both for forecasting and for policy analysis. The chapter discusses the main characteristics of the models used, their strengths and limitations. It assesses how dynamic stochastic general equilibrium (DSGE) models are used for monetary policy analysis. Examples are provided on how they contribute to explore fundamental, long-term policy issues specific to LFDCs. The chapter also discusses the contribution of small semi-structural models which, though less strongly theory grounded than DSGE models, can be brought closer to the available data and are therefore possibly better suited to the context of LFDCs. Attention is also drawn to the key role of judgement as the indispensable complement, in monetary policy decision-making, to model-based policy analysis.

scholarly journals A DSGE-VAR Analysis for Tourism Development and Sustainable Economic Growth

2020 ◽  
Vol 12 (9) ◽  
pp. 3635
Author(s):  
David Alaminos ◽  
Ana León-Gómez ◽  
José Ramón Sánchez-Serrano
Keyword(s):  
Economic Growth ◽  
Tourism Development ◽  
Dynamic Stochastic General Equilibrium ◽  
Long Term Effects ◽  
Dsge Model ◽  
External Effects ◽  
Dynamic Stochastic ◽  
Tourist Demand ◽  
Sustainable Economic Growth

This paper aims to provide a better basis for understanding the transmission connection between tourism development and sustainable economic growth in the empirical scenario of International countries. In this way, we have applied the dynamic stochastic general equilibrium (DSGE) model in different countries in order to check the power of generalization of this framework to study the tourism development. Also, we extend this model to obtain the long-term effects of tourism development with confidence intervals. The influence of tourism development on sustainable economic growth is proved by our results and show the indirect consequences between tourist activity and other industries produced through the external effects of investment and human capital and public sector. Our study confirms that the DSGE technique can be a generalized model for the analysis of tourism development and, especially, can improve previous precision results with the DSGE-VAR model, where vector autoregression (VAR) is introduced in the DSGE model. The simulation results reveal even more than when the productivity of the economy in general enhances, as the current tourist demand increases in greater proportion than more than the national tourism demand. For its part, the consumption of domestic tourism rises more than the consumption of inbound tourism if the productivity of the tourism production enhances, but non-tourism prices decrease at a slower rate and tourism investment needs a longer time to recover to what is established.

ASSET PRICING IN DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODELS WITH INDETERMINACY

2007 ◽  
Vol 12 (1) ◽  
pp. 50-71 ◽  
Author(s):  
NATALIA GERSHUN ◽  
SHARON G. HARRISON
Keyword(s):  
Asset Pricing ◽  
General Equilibrium ◽  
Returns To Scale ◽  
Dynamic Stochastic General Equilibrium ◽  
Increasing Returns ◽  
Dsge Model ◽  
Increasing Returns To Scale ◽  
Local Indeterminacy ◽  
Dynamic Stochastic ◽  
The One

We explore asset pricing in the context of the one-sector Benhabib-Farmer-Guo (BFG) model with increasing returns to scale in production and compare our results with financial implications of the standard dynamic stochastic general equilibrium (DSGE) model. Our main goal is to determine the effects of local indeterminacy and the presence of sunspot shocks on asset pricing. We find that the BFG model does not adequately represent key stylized facts of U.S. capital markets and does not improve on the asset-pricing results obtained in the standard DSGE model.

scholarly journals Growth, Water Resilience, and Sustainability: A DSGE Model Applied to South Africa

2016 ◽  
Vol 02 (04) ◽  
pp. 1650022
Author(s):  
Chuan-Zhong Li ◽  
Ranjula Bali Swain
Keyword(s):  
South Africa ◽  
Capital Accumulation ◽  
Poor Country ◽  
Change Scenario ◽  
Limiting Factor ◽  
Precipitation Pattern ◽  
Dsge Model ◽  
Stochastic Variation ◽  
Long Run ◽  
Dynamic Stochastic

In this paper, we develop a dynamic stochastic general equilibrium (DSGE) model to study how water resilience affects economic growth and dynamic welfare with special reference to South Africa. While water may become a limiting factor for future development in general, as a drought prone and water poor country with rapid population growth, South Africa may face more serious challenges for sustainable development. Analyzing the DSGE model, we conduct numerical simulations for different parameter configurations with varying discount rate, climate change scenario, and the degree of uncertainty in future precipitation. We find that with sufficient capital accumulation, development may still be sustainable despite increased future water scarcity and decreased long-run sustainable welfare. While stochastic variation in precipitation has a negative effect on water resilience and the expected dynamic welfare, the effect is mitigated by persistence in the precipitation pattern. With heavier time discounting and lower capital formation, however, the current welfare may not be sustained.

Technology Shocks and Non-stationary Hours in Emerging Countries and DSVAR

2020 ◽  
Vol 14 (2) ◽  
pp. 129-163
Author(s):  
Sevgi Coskun
Keyword(s):  
Unit Root ◽  
Emerging Market ◽  
Simulated Data ◽  
Jel Classification ◽  
Technology Shocks ◽  
Impulse Responses ◽  
Dsge Model ◽  
Hours Worked ◽  
Long Run ◽  
Dynamic Stochastic

We test a standard DSGE (Dynamic Stochastic General Equilibrium) model on impulse responses of hours worked and real GDP after technology and non-technology shocks in emerging market economies (EMEs). Most dynamic macroeconomic models assume that hours worked are stationary. However, in the data, we observe apparent changes in hours worked from 1970 to 2013 in these economies. Motivated by this fact, we first estimate a structural vector autoregression (SVAR) model with a specification of hours in difference (DSVAR) and then set up a DSGE model by incorporating permanent labour supply (LS) shocks that can generate a unit root in hours worked, while preserving the property of a balanced growth path. These LS shocks could be associated with very dramatic changes in LS which look permanent in these economies. Hence, the identification restriction in our models comes from the fact that both technology and LS shocks have a permanent effect on GDP yet only the latter shocks have a long-run impact on hours worked. For inference purposes, we compare empirical impulse responses based on the EMEs data to impulse responses from DSVARs run on the simulated data from the model. The results show that a DSGE model with permanent LS shocks that can generate a unit root in hours worked is required to properly evaluate the DSVAR in EMEs as this model is able to replicate indirectly impulse responses obtained from a DSVAR on the actual data. JEL Classification: C32, E32

Public investment and inclusive growth in Africa

2020 ◽  
Vol 47 (12) ◽  
pp. 1669-1691
Author(s):  
Opeoluwa Adeniyi Adeosun ◽  
Philip Akanni Olomola ◽  
Adebayo Adedokun ◽  
Olumide Steven Ayodele
Keyword(s):  
Fiscal Policy ◽  
Public Investment ◽  
Inclusive Growth ◽  
Government Investment ◽  
Automatic Stabilization ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
The Government ◽  
Productive Employment

PurposeThe increasing debate on the viability of broad-based productive employment in stimulating the participatory tendencies of growth makes it instructive to inquire how the African “Big Five” have fared in their quests to ensure growth inclusiveness through public investment-led fiscal policy.Design/methodology/approachTime varying structures and nonlinearities in the government investment series are captured through the non-linear autoregressive distributed lag, asymmetric impulse responses and variance decomposition estimation techniques.FindingsStudy findings show that positive investment shocks stimulate growth inclusiveness by enabling access to opportunities through job creation and productive employment for the populace; this result is evident for Morocco and Algeria. However, there is a non-negligible evidence that shocks due to decline in the government investment manifest in insufficient capital stocks and limited investment opportunities, impede access to opportunities by the populace, hinder labour employability and make growth less inclusive. Furthermore, all short-run findings corroborate long-run results regarding the reaction of inclusive growth to positive investment shocks with the exclusion of South Africa; which, unlike its long-run finding, shows that shocks due to increases in investment can foster growth inclusiveness. Also, in respect to short-run negative investment shocks, Nigeria is the only country that does not align its long-run findings.Practical implicationsThat public investment shocks make or mar inclusive growth effectiveness shows the need for appropriate fiscal policy consolidation and automatic stabilization guidelines to ensure buffers against shocks and to enhance government investment generation efficiency for a sustainable inclusive growth process that is more participatory in Africa.Originality/valueThis study is the first to accommodate possibilities of shocks in the inclusivity of growth analysis for the five biggest African economies which jointly account for over half of the recorded growth in the continent. As such, there is quantitative evidence that government investment is a potent determinant of growth inclusiveness and it is susceptible to structural changes and time variation of shocks.

DSGE-based forecasting: What should our perspective be?

2016 ◽  
pp. 129-146 ◽  
Author(s):  
O. Malakhovskaya
Keyword(s):  
Bayesian Methods ◽  
Structural Model ◽  
Dynamic Stochastic General Equilibrium ◽  
Forecast Errors ◽  
Main Question ◽  
Dsge Model ◽  
Vector Autoregressions ◽  
Structural Dynamic ◽  
Dynamic Stochastic ◽  
The Difference

The article compares the accuracy of point forecasts made with a structural dynamic stochastic general equilibrium model (DSGE) to those made with vector autoregressions estimated by OLS (VAR) and by Bayesian methods (BVAR). The main question addressed in the article is whether DSGE-based forecasts are as accurate as non-structural model ones. The comparison is made on the ground of mean squared forecast errors. The results show that the forecasting ability of the DSGE model is in general inferior to that of the BVAR. However, the difference is not critical. Moreover, for some variables and forecasting horizons, the DSGE model produces the forecast with the lowest error among all three models in question.

Macroeconomic Risks and Asset Pricing: Evidence from a Dynamic Stochastic General Equilibrium Model

2019 ◽  
Vol 65 (8) ◽  
pp. 3585-3604 ◽  
Author(s):  
Erica X. N. Li ◽  
Haitao Li ◽  
Shujing Wang ◽  
Cindy Yu
Keyword(s):  
Asset Pricing ◽  
General Equilibrium ◽  
Factor Model ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Cross Sectional ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
Macroeconomic Risks

We study the relation between macroeconomic fundamentals and asset pricing through the lens of a dynamic stochastic general equilibrium (DSGE) model. We provide full-information Bayesian estimation of the DSGE model using macroeconomic variables and extract the time series of four latent fundamental shocks of the model: neutral technology shock, investment-specific technological shock, monetary policy shock, and risk shock. Asset pricing tests show that our model-implied four-factor model can explain a number of prominent cross-sectional return spreads: size, book-to-market, investment, earnings, and long-term reversal. The investment-specific technological shock and risk shock play the most important role in explaining those return spreads. This paper was accepted by Neng Wang, finance.

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