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Getting to Know the Global Economy Model and Its Philosophy

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  • Douglas Laxton

Abstract

This paper provides a nontechnical introduction to the IMF's Global Economy Model (GEM). GEM is a modern dynamic stochastic general equilibrium (DSGE) model that has been designed for studying a range of issues that cannot be adequately addressed with reduced-form econometric models or an earlier generation of macromodels whose dynamic equations were not based on strong choice-theoretic foundations. Unlike earlier models, which were viewed as black boxes by many outsiders, GEM's theoretical structure is much better connected with work in the academic community, making it considerably easier for outside researchers to apply it and extend it for their own work. To understand the basic philosophy behind GEM, we start by using the issue of exchange rate pass-through to understand how adding additional features to the model allows one to better understand issues related to the magnitude of exchange rate pass-through. We then provide a nontechnical introduction to what needs to be known to develop a steady-state calibration of the model. Finally, we end by summarizing other work on DSGE modeling at the IMF and lay out a few major priorities for the future. IMF Staff Papers (2008) 55, 213–242; doi:10.1057/imfsp.2008.11

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 55 (2008)
Issue (Month): 2 (June)
Pages: 213-242

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Handle: RePEc:pal:imfstp:v:55:y:2008:i:2:p:213-242

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References

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  1. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  2. Juillard, Michael & Kamenik, Ondra & Kumhof, Michael & Laxton, Douglas, 2008. "Optimal price setting and inflation inertia in a rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2584-2621, August.
  3. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  4. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  5. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2008. "A Comparison Of Forecast Performance Between Federal Reserve Staff Forecasts, Simple Reduced-Form Models, And A Dsge Model," CAMA Working Papers 2009-03, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports 97, Bank of Canada.
  7. Armstrong, John & Black, Richard & Laxton, Douglas & Rose, David, 1998. "A robust method for simulating forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 22(4), pages 489-501, April.
  8. Boucekkine, Raouf, 1995. "An alternative methodology for solving nonlinear forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 711-734, May.
  9. Douglas Laxton & Paolo Pesenti, 2003. "Monetary Rules for Small, Open, Emerging Economies," NBER Working Papers 9568, National Bureau of Economic Research, Inc.
  10. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  11. Juillard, Michel & Laxton, Douglas & McAdam, Peter & Pioro, Hope, 1998. "An algorithm competition: First-order iterations versus Newton-based techniques," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1291-1318, August.
  12. Dirk Muir & Douglas Laxton & Dennis P. J. Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
  13. Douglas Laxton & Michael Kumhof, 2007. "A Party without a Hangover? On the Effects of U.S. Government Deficits," 2007 Meeting Papers 676, Society for Economic Dynamics.
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Citations

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Cited by:
  1. Camilo E Tovar, 2008. "DSGE models and central banks," BIS Working Papers 258, Bank for International Settlements.
  2. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, 2013. "Assessing policy reforms for Italy using ITEM and QUESTIII," CEIS Research Paper 280, Tor Vergata University, CEIS, revised 17 May 2013.
  3. Hatcher, Michael C., 2011. "Comparing inflation and price-level targeting: A comprehensive review of the literature," Cardiff Economics Working Papers E2011/22, Cardiff University, Cardiff Business School, Economics Section.
  4. Hatcher, Michael C. & Minford, Patrick, 2013. "Stabilization policy, rational expectations and price-level versus inflation targeting: a survey," Cardiff Economics Working Papers E2013/14, Cardiff University, Cardiff Business School, Economics Section.
  5. Emilia Mioara CAMPEANU, 2012. "How can be investigated the fiscal policy effects on the Romanian economy?," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 80-87, May.
  6. Masahiro Kawai & Fan Zhai, 2010. "Asia’s Post-Global Financial Crisis Adjustment : A Model-Based Dynamic Scenario Analysis," Finance Working Papers 23055, East Asian Bureau of Economic Research.
  7. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, . "Macroeconomic Modelling and the Effects of Policy Reforms: an Assessment for Italy using ITEM and," Working Papers 1, Department of the Treasury, Ministry of the Economy and of Finance.

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