Sigma: A New Open Economy Model for Policy Analysis
IFDP Discussion Paper No. 835
53 Pages Posted: 17 Aug 2005
Date Written: July 2005
Abstract
In this paper, we describe a new multi-country open economy SDGE model named SIGMA that we have developed as a quantitative tool for policy analysis. We compare SIGMA's implications to those of an estimated large-scale econometric policy model (the FRB/Global model) for an array of shocks that are often examined in open-economy policy simulations. We show that SIGMA's implications for the near-term (2-3 year) responses of key variables are generally similar to those of FRB/Global. Two features of our modeling framework, including rational expectations with learning, and the inclusion of some non-Ricardian agents, play an important role in giving SIGMA more flexibility to generate responses akin to the econometric policy model; nevertheless, some quantitative disparities between the two models remain due to certain restrictive aspects of SIGMA's optimization-based framework. We conclude by using long-term simulations to illustrate some areas of comparative advantage of our SDGE modeling framework. These include linking model responses to underlying structural features of the economy, and fully articulating the endogenous channels through which imbalances arising from various shocks are alleviated.
Keywords: SDGE model, open-economy macroeconomics
JEL Classification: E32, F41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
By Lawrence J. Christiano, Martin Eichenbaum, ...
-
Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
By Lawrence J. Christiano, Martin Eichenbaum, ...
-
An Estimated Stochastic Dynamic General Equilibrium Model of the Euro Area
By Frank Smets and Rafael Wouters
-
An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area
By Frank Smets and Rafael Wouters
-
Optimal Monetary Policy with Staggered Wage and Price Contracts
By Christopher J. Erceg, Dale W. Henderson, ...
-
Shocks and Frictions in Us Business Cycles: A Bayesian DSGE Approach
By Frank Smets and Rafael Wouters
-
Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach
By Frank Smets and Rafael Wouters
-
Shocks and Frictions in U.S. Business Cycles: A Bayesian DSGE Approach
By Frank Smets and Rafael Wouters
-
Resuscitating Real Business Cycles
By Robert G. King and Sergio T. Rebelo
-
Has Monetary Policy Become More Effective?
By Jean Boivin and Marc P. Giannoni