The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area

Gomes, Sandra; Jacquinot, Pascal; Pisani, Massimiliano

doi:10.1016/j.econmod.2012.04.002

Cited by 222 publications

(93 citation statements)

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“…Figure 1 and Figure 2 show the results of the fiscal devaluation in Spain. 17 The Spanish trade balance improves by 0.5 percent of GDP after two years from the beginning of devaluation. Thereafter, it gradually returns to the steady state.…”

Section: Resultsmentioning

confidence: 99%

“…Data are available upon request. 17 The employers' social security contributions rate decreases from 15.6 to 13.3 percent. The consumption tax rate increases from 7.6 to 9.5 percent.…”

Section: Resultsmentioning

confidence: 99%

“…We set the (long-run) elasticity of substitution between tradables and non-tradables to 0.45 while the long-run elasticity between domestic and imported tradables is set to 3. Table 4 (for details see Gomes et al, 2010). 13 In particular, it is interesting to note that intra-euro area trade represents a significant share of total trade in the two euro area regions.…”

Section: Calibrationmentioning

confidence: 99%

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Fiscal devaluation in the euro area: A model-based analysis

2016

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In 2014 all ECB publications feature a motif taken from the €20 banknote.NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily refl ect those of the ECB. Sandra GomesBank of Portugal; e-mail: sandra.cristina.gomes@bportugal.pt Pascal JacquinotEuropean Central Bank; e-mail: pascal.jacquinot@ecb.int Massimiliano PisaniBank of Italy; e-mail: massimiliano.pisani@bancaditalia.it AbstractWe assess the effects on trade balance of a temporary fiscal devaluation enacted by Spain or Portugal by simulating EAGLE, a large-scale multi-country dynamic general equilibrium model of the euro area. Social contributions paid by firms are reduced by 1 percent of GDP for four years and are financed by increasing consumption tax. Our main results are the following. First, the Spanish trade balance improves by 0.5 percent of GDP, the (before-consumption tax) real exchange rate depreciates by 0.7 percent and the terms of trade deteriorate by 1 percent. Second, similar results are obtained in the case of Portugal. Third, the trade balance improves when the fiscal devaluation is enacted also in the rest of the euro area, albeit to a lower extent than in the case of unilateral (country-specific) implementation. Fourth, quantitative results crucially depend on the degree of substitutability between domestic and imported tradables. JEL Classification Numbers: F32; F47; H20.Keywords: fiscal devaluation; trade deficit; dynamic general equilibrium modeling. ECB Working Paper 1725, August 2014 1Non-technical Summary A country belonging to a monetary union cannot rely on nominal exchange rate devaluation to increase, in presence of nominal price rigidities, its international relative price competitiveness and, hence, improve in the short run its trade balance. An alternative way to increase the short-run international price competitiveness is through a temporary "fiscal devaluation", defined as the combination of two fiscal measures: the decrease in social contributions paid by employers and the increase in consumption tax.The reduction in employers' social contributions reduces the unit labor costs. As long as the latter are passed-through into final prices, the improvement in price competitiveness favors exports and reduces imports. The reduction in contributions is financed by increasing the consumption tax, which is also a destination-based tax. As such, it raises the after-tax price of domestic and imported goods uniformly, but not the price of exported goods. Overall, the combination of lower unit labor costs and higher consumption tax decreases the price of exported goods and increases the after-tax relative price of the imported good.In this paper we assess the trade balance improvement in correspondence of a tem- lower than in the case on unilateral devaluation, as tradable goods produced in the rest of the euro area are now more competitive than in the case of unilateral devaluation. Ex-

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Section: Resultsmentioning

confidence: 99%

“…Data are available upon request. 17 The employers' social security contributions rate decreases from 15.6 to 13.3 percent. The consumption tax rate increases from 7.6 to 9.5 percent.…”

Section: Resultsmentioning

confidence: 99%

Section: Calibrationmentioning

confidence: 99%

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Fiscal devaluation in the euro area: A model-based analysis

2016

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“…The estimated models of the early 2000s associated the DSGE environment as a powerful modelling device, and stimulated the adoption of these tools by actual policymakers for real-life/realtime economic policy design and forecast. EAGLE of the European Central Bank (Gomes, Jacquinot, & Pisani, 2010) and Ramses of the Sveriges Riksbank (Adolfson et al, 2013) are a few examples.…”

Section: Introductionmentioning

confidence: 99%

A small New Keynesian model to analyze business cycle dynamics in Poland and Romania

Nalban

2015

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In this paper, we derive a small textbook New Keynesian DSGE model to evaluate Polish and Romanian business cycles during the 2003-2014 period. Given the similarities between the two economies, we use an identical calibration procedure for certain coefficients and marginal prior distributions for the others, rendering the resulting cross-country differences as primarily data-driven. The estimated structural coefficients for the two countries have comparable values, implying similar qualitative macroeconomic transmission mechanisms. However, the Romanian shocks display much more variability, and the impulse response functions have similar shapes but deeper trajectories. The model-simulated theoretical moments for the output growth, the inflation rate and the nominal interest rate (means, standard deviations and cross-correlations) are close to their actual data counterparts, demonstrating the models' ability to match and replicate statistical properties of the observed variables. Shock decompositions of the output and the inflation rate revealed the driving forces of the business cycles; demand shocks explain much of the GDP growth dynamics (persistent positive contributions before the crisis and negative thereafter), whereas prices were also driven by supply and monetary policy shocks, the latter being more important for Poland. Introduction

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“…The well-known literature describes the regional unions within the framework of the DSGE models in the following way: 1) Representation of the regional union as one country and the rest of the world as another country [2], [3]; 2) Representation of the regional union as one country and the rest of the world as a number of countries [4]; 3) Representation of the regional union as two countriesthe country under study and the rest of the regional union, and excluding the rest of the world [5]- [7]; 4) Representation of the regional union as two countriesthe country under study and the rest of the regional union, and the rest of the world as a number of countries [8]. This paper provides DSGE model of the Customs Union and the rest of the world (hereinafter the Model), which differs from the known representations of regional unions that considered regional union is presented in terms of three separate countries, interacting both with each other and with the rest of the world (presented in the form of one country).…”

Section: Introductionmentioning

confidence: 99%