Computational Macroeconomics for the Open Economy by G. C. Lim, Paul D. McNelis

By G. C. Lim, Paul D. McNelis

Policymakers want quantitative in addition to qualitative solutions to urgent coverage questions. due to advances in computational tools, quantitative estimates at the moment are derived from coherent nonlinear dynamic macroeconomic versions embodying measures of possibility and calibrated to seize particular features of real-world occasions. this article indicates how such types may be made available and operational for confronting coverage matters. The e-book starts off with an easy surroundings according to market-clearing fee flexibility. It progressively accommodates departures from the straightforward aggressive framework within the type of cost and salary stickiness, taxes, rigidities in funding, monetary frictions, and behavior endurance in intake. such a lot chapters finish with computational workouts; the Matlab code for the bottom version are available within the appendix. because the types evolve, readers are inspired to change the codes from the 1st basic version to extra complicated extensions. Computational Macroeconomics for the Open economic climate can be utilized by way of graduate scholars in economics and finance in addition to policy-oriented researchers.

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And, of course, it allows us to incorporate asymmetries, threshold effects, and precautionary behavior. As Canova notes, the advantage of using this method is that the researcher or policy analyst can undertake experiments that are far away from the steady state, or involve more dramatic regime changes in the policy rule. Canova further notes two specific advantages of this approach: first, it can be used when inequality constraints are present, and second, it has a built-in mechanism to check if a candidate solution satisfies the optimality conditions of the model.

To be sure, the numbers in the figure do not have any particular meaning. By way of comparison, the figure also includes the welfare distribution for the case with a Taylor rule—the shocks are identical to the case without active monetary policy. As can be seen, there are more outcomes on the lower end of welfare. In later chapters we will examine how alternative forms of price stickiness and other distortions cause further deviations of welfare from the benchmark case. 5 39 Effects of a Demand Shock Until now we have only examined the dynamic effects of an exogenous change in productivity.

5 39 Effects of a Demand Shock Until now we have only examined the dynamic effects of an exogenous change in productivity. Since Kydland and Prescott (1982), productivity or technology changes have been extensively examined as the major source of business cycles, at least in industrialized or developed countries. So it is natural to use productivity changes as the exogenous variable for our first series of computational experiments or simulation studies with our model. But of course, countries are subject to (or vulnerable to) a wide variety of exogenous factors.

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