Extended DSGE Model of the Czech Economy

Transcription

1 Zbyněk Štork Božena Bobková Ilkin Aliyev Moderní nástroje pro finanční analýzu a modelování

2 Outline 1 Extended DSGE model 2 3 Simulation 4

3 Outline 1 Extended DSGE model 2 3 Simulation 4

4 Outline 1 Extended DSGE model 2 3 Simulation 4

5 Outline 1 Extended DSGE model 2 3 Simulation 4

6 Outline 1 Extended DSGE model 2 3 Simulation 4

7 DSGE Modelling in General... Forecast model scenario for quarterly Macroeconomic Forecast Simulations for strategic documents (Convergence Programme, Fiscal Outlook) and ad hoc analysis HUBERT - Dynamic Stochastic General Equilibrium model. We began from a small simple model (households, firms, government, central bank, foreign sector) two extensions were made: 1 households and fiscal block 2 domestic demand (consumption and investments) net export (exports and imports)

8 DSGE Modelling in General... Forecast model scenario for quarterly Macroeconomic Forecast Simulations for strategic documents (Convergence Programme, Fiscal Outlook) and ad hoc analysis HUBERT - Dynamic Stochastic General Equilibrium model. We began from a small simple model (households, firms, government, central bank, foreign sector) two extensions were made: 1 households and fiscal block 2 domestic demand (consumption and investments) net export (exports and imports)

9 DSGE Modelling in General... Forecast model scenario for quarterly Macroeconomic Forecast Simulations for strategic documents (Convergence Programme, Fiscal Outlook) and ad hoc analysis HUBERT - Dynamic Stochastic General Equilibrium model. We began from a small simple model (households, firms, government, central bank, foreign sector) two extensions were made: 1 households and fiscal block 2 domestic demand (consumption and investments) net export (exports and imports)

10 DSGE Modelling in General... Forecast model scenario for quarterly Macroeconomic Forecast Simulations for strategic documents (Convergence Programme, Fiscal Outlook) and ad hoc analysis HUBERT - Dynamic Stochastic General Equilibrium model. We began from a small simple model (households, firms, government, central bank, foreign sector) two extensions were made: 1 households and fiscal block 2 domestic demand (consumption and investments) net export (exports and imports)

11 Outline 1 Extended DSGE model 2 3 Simulation 4

12 Building Blocks of the Model Households Infinitely lived agents; Habit formation for smoother consumption; Savers and Spenders. Governmental authorities Monetary policy: Taylor rule; Fiscal policy: aggregated revenues and expenditures, fiscal rule focused on debt stability. Firms Cobb-Douglas production function, CES aggregation ; Price takers assumption; Calvo pricing. Foreign sector Approximated by EA aggregate; simple AR processes; imports and exports based on domestic and foreign demand and price differentials.

13 Building Blocks of the Model Households Infinitely lived agents; Habit formation for smoother consumption; Savers and Spenders. Firms Cobb-Douglas production function, CES aggregation ; Price takers assumption; Calvo pricing. Households - main equations: Governmental authorities Monetary policy: Taylor rule; Fiscal policy: aggregated revenues (1 + τt c )PC t Cand j,t R + PI expenditures, t I j,t + P t a(u j,t )K s fiscal rule focused on debt stability. Foreign sector E t β n U j,t+n = E t β n ( log C R ) j,t+n H j,t+n (NR j,t+n )1+ψ N (1) 1 + ψ n= n= N j,t + R 1 B j,t t R t S +ζ t B t j,t+1 = = B j,t + S t Bj,t + (1 τ t k )[Rt k u j,t Kj,t s + Q t ] + (1 τt w Approximated by EA aggregate; simple AR processes; imports and exports based on )W domestic t N R (2) j,t and foreign demand and price differentials. (1 + τ c t )PC t C N j,t = (1 τ w t )W t N N j,t + τ b t W b(n N j,t LN j,t ) + TR t (3)

14 Building Blocks of the Model Households Infinitely lived agents; Habit formation for smoother consumption; Savers and Spenders. Firms Cobb-Douglas production function, CES aggregation ; Price takers assumption; Calvo pricing. Firms - main equations: Governmental authorities Monetary policy: Taylor t rule; it Fiscal policy: aggregated Y t = it revenues and expenditures, P 1 θ t = ξ pp 1 θ t 1 fiscal rule focused on debt stability. Foreign sector Y it = z 1 η K η it L1 η Approximated by EA aggregate; (1a) [ 1 θ/(θ 1) Y di] (θ 1)/θ (1b) simple AR processes; + ( ) ( 1 ξ p P new ) 1 θ t (1c) (W t ) 1 θ W = α R [ξ w ( Wt 1 ) 1 θw + (1 ξw ) imports and exports based on domestic ( and foreign demand W and new ) ] 1 θw t price differentials. + (1 α R ) ( W t 1 ) 1 θw (1d)

15 Building Blocks of the Model Governmental authorities - main equations: Households Infinitely lived agents; Habit formation for smoother consumption; Savers and Spenders. Firms GR t = τ c t (P C ) t C t + G t + τ w t W t L t + τ k t (R k ) t K t + Q t Cobb-Douglas production function, CES aggregation ; Price takers assumption; Calvo pricing. (1a) GE t = G C t + τ b t W t L t + G O t (1b) GE t GR t = 1 R t B t+1 B t (1c) ˆR t = (1 φ r )[λ π ˆπ t + λ y ŷ t ] + φ r ˆRt 1 (1d) Governmental authorities Monetary policy: Taylor rule; Fiscal policy: aggregated revenues and expenditures, fiscal rule focused on debt stability. Foreign sector Approximated by EA aggregate; simple AR processes; imports and exports based on domestic and foreign demand and price differentials.

16 Building Blocks of the Model Households Foreign sector - main equations: Infinitely lived agents; Habit formation for smoother consumption; Savers and Spenders. Firms M t = C m t + I m t (1a) X t = C m t + I m t Cobb-Douglas production function, CES aggregation ; Price takers assumption; F t = Φ F t 1 + ɛ t, wheref t = [C m t, I m t, P t, R t ]. (1c) Calvo pricing. (1b) Governmental authorities Monetary policy: Taylor rule; Fiscal policy: aggregated revenues and expenditures, fiscal rule focused on debt stability. Foreign sector Approximated by EA aggregate; simple AR processes; imports and exports based on domestic and foreign demand and price differentials.

17 Building Blocks of the Model Households Infinitely lived agents; Habit formation for smoother consumption; Savers and Spenders. Governmental authorities Monetary policy: Taylor rule; Fiscal policy: aggregated revenues and expenditures, fiscal rule focused on debt stability. Firms Cobb-Douglas production function, CES aggregation ; Price takers assumption; Calvo pricing. Foreign sector Approximated by EA aggregate; simple AR processes; imports and exports based on domestic and foreign demand and price differentials.

18 Outline 1 Extended DSGE model 2 3 Simulation 4

19 Model parameters Initial values of selected parameters Parameters Value Calibrated Estimated from data regression ss α r, s R.32, 1.55 β.99 δ.1 η.53 θ c, θ c, θ i, θ i.2.3 κ 11 µ cm, µ im.22,.32 µ z 1.5 ξ p, ξ w.9,.2 φ r, λ π, λ y.5,1.5,.5 ω rkz 12.72

20 Outline 1 Extended DSGE model 2 3 Simulation 4

21 Preliminary estimation results of selected parameters Parameters Prior Prior Posterior distribution mean mean h r habit formation beta.65.8 θ c domestic good e.s. beta.4.13 θ w labor good e.s. uniform θ i investment good e.s. beta.2.2 κ inv. adjustment cost normal δ depreciation rate beta.1.1 ξ p Calvo prices uniform.5.2 ξ w Calvo wages uniform.5.46 ψ n Frisch elasticity invgamma

22 Prior and posterior distribution of selected parameters

23 Multivariate convergence diagnostics

24 Simulation Outline 1 Extended DSGE model 2 3 Simulation 4

25 Simulation Macroeconomic shocks Foreign demand shock 1 y* y.5 y* c.5 y* i 1 y* x y* m y* P y* R y* N y* L y* w y* gr 1 x y* ge y* s y* y*

26 Simulation Fiscal shocks Tax rate on consumption shock.2 τ c y 1 τ c c.2 τ c i.2 τ c x τ c m x τ c P τ c R τ c N τ c L τ c w τ c gr 5 x τ c ge τ c s τ c τ c

27 Summary Started from a simple model......necessary extensions driven by demand. Recently focusing on estimations. Next steps Not any further enlargements......focus on improving outputs; case studies. Solve labor market issues.

28 Summary Started from a simple model......necessary extensions driven by demand. Recently focusing on estimations. Next steps Not any further enlargements......focus on improving outputs; case studies. Solve labor market issues.

29 Thank you for your attention... Zbyněk Štork and Božena Bobková Aliyev, I. Bobková, B. Štork, Z. (214) Extended DSGE model of the Czech economy. Ministry of Finance of the Czech Republic, Working Paper, 1/214.