Computational Macroeconomics for the Open Economy by G. C. Lim, Paul D. McNelis

By G. C. Lim, Paul D. McNelis

Policymakers desire quantitative in addition to qualitative solutions to urgent coverage questions. due to advances in computational equipment, quantitative estimates are actually derived from coherent nonlinear dynamic macroeconomic types embodying measures of probability and calibrated to catch particular features of real-world events. this article exhibits how such types might be made available and operational for confronting coverage matters. The ebook begins with an easy environment according to market-clearing fee flexibility. It progressively accommodates departures from the straightforward aggressive framework within the kind of rate and salary stickiness, taxes, rigidities in funding, monetary frictions, and behavior endurance in intake. so much chapters finish with computational routines; the Matlab code for the bottom version are available within the appendix. because the versions evolve, readers are inspired to change the codes from the 1st basic version to extra complicated extensions. Computational Macroeconomics for the Open financial system can be utilized via graduate scholars in economics and finance in addition to policy-oriented researchers.

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In later chapters we will examine the effects of exogenous stochastic export demand, as well endogenous exports, that are dependent on the real exchange rate. 6 Calibration The calibrated parameter values are shown in the appendix at the end of the book. The values for s, b, $, and a are the values suggested by 28 Chapter 2 Smets and Wouters (2002). The Taylor rule parameters, the values for y and fp , are set to allow for some inertia. There is nothing controversial about these values. Solving for the steady-state values is relatively easy, given the coefficients of the model and our choice of normalizations.

The exogenous productivity index appear in the top left-hand panel. The figure shows that productivity has a positive effect on output and a negative effect on price, which then encourages more consumption. The improvement in productivity also results in a fall in labor and an increase in the real wage. Foreign debt initially increases with the fall in the trade balance (imports increase with the increase in production but exports remain fixed). In this case the interest rate falls with the fall in price, and with the domestic rate less than the foreign 34 Chapter 2 interest rate (a fall in interest differential), the exchange rate first depreciates and then appreciates back to the steady-state value.

We note, however, that the model in this chapter is different from the standard real business-cycle model in that there is no capital accumulation and that it is moreover an open economy model. 6 Correlations among key economic variables tween productivity and price hold as we add more frictions to this basic model. 3 Welfare Distributions Although the flexible price model is clearly unrealistic for replicating key features of real world data, it serves one important purpose for economic policy evaluation.

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