Policy Analysis and Forecasting in the World Economy: A Panel Dynamic Stochastic General Equilibrium Approach

Abstract

This paper develops a structural macroeconometric model of the world economy, disaggregated into thirty five national economies. This panel unobserved components model encompasses an approximate linear panel dynamic stochastic general equilibrium model featuring a monetary transmission mechanism, a fiscal transmission mechanism, and extensive macrofinancial linkages, both within and across economies. A variety of monetary policy analysis, fiscal policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated, based on a Bayesian framework for conditioning on judgment.

Keywords: Monetary transmission mechanism, Spillovers, Monetary policy, Fiscal policy, Economic forecasting, Cross country analysis, Economic models, Monetary policy analysis, Fiscal policy analysis, Spillover analysis, domestic demand, terms of trade, current account balance, output growth, world economy, import price, trade openness, equilibrium model, trade ? shocks, terms of trade ? shocks, exchange rate regime, bilateral trade, constant elasticity of substitution, terms of trade shocks, trading partners, net exports, import demand, trade relationships, world output, dynamic effects, international trade, export price, aggregate consumption, commodity prices, trade sector, trade patterns, price of

JEL Classification: C11, C33, C51, C53, E31, E32, E44, E52, E62, F41