OPEN-ECONOMY MARKET: Model Calibration 3

In Figure 2, we see that a unit aggregate demand shock leads to an upward jump in output that tails away as time passes. This blip inyt leads to a real depreciation (i.e. qt rises), because of the increased import demand; via (5.15), the depreciation brings about a drop in уThe fall in inflation results […]

Tags: , ,

  • Digg
  • Del.icio.us
  • StumbleUpon
  • Reddit
  • Twitter
  • RSS
read comments

OPEN-ECONOMY MARKET: Model Calibration 2

To examine the properties of this model, we have calculated impulse response functions for the main endogenous variables in response to the system’s five shocks. For this exercise, we have used the following policy rule, which features Impulse response functions, depicting the reaction to unit shocks to zRti (1 – ph)~]vh ey*h eKl, and еш […]

Tags: , ,

  • Digg
  • Del.icio.us
  • StumbleUpon
  • Reddit
  • Twitter
  • RSS
read comments

OPEN-ECONOMY MARKET: Model Calibration

We base our calibration of our model’s preference parameters on Fuhrer’s (1998) estimates. Accordingly, we set the intertemporal elasticity of substitution, a, to 1/6 (a value which is also close to our estimate in McCallum and Nelson [1998]) and h to 0.8. The IS shocks {v,} are assumed to be white noise (pv = 0) […]

Tags: , ,

  • Digg
  • Del.icio.us
  • StumbleUpon
  • Reddit
  • Twitter
  • RSS
read comments

OPEN-ECONOMY MARKET: Price Adjustment 3

In the case of no habit persistence (h = 0), (6.3) collapses to the standard consumption Euler equation relating E,Ac/+1 to the real interest rate. Reading here Furthermore, in a closed economy, the h – 0 case would imply a version of the optimizing IS equation that is used in Kerr and King (1996), Woodford […]

Tags: , ,

  • Digg
  • Del.icio.us
  • StumbleUpon
  • Reddit
  • Twitter
  • RSS
read comments

OPEN-ECONOMY MARKET: Price Adjustment 2

McCallum and Nelson (1998) show that rearrangement of equation (5.7) establishes that the aggregate price behavior implied by problem (5.5) is the same as that associated with the “P-baf ’ model of price adjustment (e.g., McCallum [1994]). They additionally show that solving the Euler equation (5.7) produces the following decision rule for pt:

Tags: , ,

  • Digg
  • Del.icio.us
  • StumbleUpon
  • Reddit
  • Twitter
  • RSS
read comments

OPEN-ECONOMY MARKET: Price Adjustment

We defer discussion of this until the next section, other than to note that, in common with other general equilibrium models that use Dixit-Stiglitz aggregation (such as Ireland [1997]), our model has the property that under price flexibility, the markup (Л, /£,) is constant, and equal to 0/(0-1). where st = log St. Our analysis […]

Tags: , ,

  • Digg
  • Del.icio.us
  • StumbleUpon
  • Reddit
  • Twitter
  • RSS
read comments