DSGE Models for Monetary Policy Analysis

Using a Bayesian structural vector autoregression analysis, we document that an increase in government purchases raises private consumption, the real wage, and total factor productivity (TFP) while reducing inflation. These three facts are hard to reconcile with both neoclassical and New Keynesian models. We extend a standard New Keynesian model to allow for skill accumulation through past work experience. An increase in government spending increases hours and induces skill accumulation and higher measured TFP and real wages in subsequent periods. Future marginal costs fall lowering expected inflation and, through the monetary policy rule, the real interest rate. Consumption increases as a result.

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“…Let

G D P_{t}

denote the total real flow of consumable resources

G D P_{t} = C_{t} + F_{t} + G_{t},

as in Christiano et al. (), with

g d p_{t}

being its logarithm.…”

Section: The Modelmentioning

confidence: 99%

Fiscal Stimulus With Learning‐by‐doing

D'Alessandro

Fella

Melosi

2019

Int Economic Review

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“…14 14 Christiano, Trabandt, and Walentin (2009) follow a similar approach to deal with the strong wealth effect problem. In a subsequent paper (Christiano, Trabandt, and Walentin 2010) the same authors propose an alternative model, where the probability of finding a job is increasing in search effort, and where imperfect risk sharing among individuals is a consequence of the unobservability of effort.…”

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confidence: 99%

The Return of the Wage Phillips Curve

Galı́

2011

Journal of the European Economic Association

262

304

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The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage in ‡ation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical wage equations-starting from Phillips' (1958) original work-and may thus be viewed as providing some theoretical foundations to the latter. The structural wage equation derived here is shown to account reasonably well for the comovement of wage in ‡ation and the unemployment rate in the U.S. economy, even under the strong assumption of a constant natural rate of unemployment.

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“…For example, see Gilchrist and Williams () for multi‐period investment projects and Christiano et al. () for working capital to pay for the wage bill.…”

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confidence: 99%

The Demand for Liquid Assets, Corporate Saving, and International Capital Flows

Bacchetta

Benhima

2015

Journal of the European Economic Association

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The recent period of capital outflows from emerging economies has coincided with an increase in their corporate saving. In this paper, we model corporate saving as a demand for liquid assets by creditconstrained firms in a dynamic open-economy macroeconomic model. We find that the implications of this model are very different from standard models, because the demand for foreign bonds is a complement to domestic investment rather than a substitute. We show that this complementarity is at work when an emerging economy is on its convergence path or when it has a higher TFP growth rate. This framework is consistent with a number of stylized facts found in high-growth, high-investment emerging economies. (JEL: E22, F21, F41, F43)

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DSGE Models for Monetary Policy Analysis

Cited by 172 publications

References 91 publications

Fiscal Stimulus With Learning‐by‐doing

Fiscal Stimulus With Learning‐by‐doing

The Return of the Wage Phillips Curve

The Demand for Liquid Assets, Corporate Saving, and International Capital Flows

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