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Monetary policy in a CGE model

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  • Galindev, Ragchaasuren
  • Decaluwé, Bernard

Abstract

This paper aims to develop a CGE model with an explicit monetary policy rule which replaces typical exogenous numeraire so that the model can have endogenous absolute price. A model with exogenous numeraire can be derived as a special case of the current model through a flexible parameterization. It shows that in the presence of nominal rigidities, simulation results for the same shock can be different depending on the choice of numeraire. The current model also gives different results for the same shock by creating inflation. The paper highlights the importance of choosing numeraire or considering the interest rate rule instead of fixed numeraire in the presence of nominal rigidities.

Suggested Citation

  • Galindev, Ragchaasuren & Decaluwé, Bernard, 2020. "Monetary policy in a CGE model," Conference papers 333185, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333185
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    References listed on IDEAS

    as
    1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    3. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

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