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The Global Economy Model: Theoretical Framework


  • Paolo Pesenti


This paper has two purposes. First, it provides a thorough exposition of the theoretical framework underlying the Global Economy Model (GEM), as the model stands in early 2008. Second, it discusses a number of variants and alternative features considered in the GEM-related literature since Laxton and Pesenti (2003). For an updated survey of GEM and other dynamic, stochastic, general-equilibrium applications at the IMF, the reader is referred to Botman and others (2007). Each section starts with a formal description of the relevant equations, and is followed by a presentation of modeling variants and options. When appropriate, the section provides a more detailed discussion of how the building blocks of GEM relate to the literature. It is worth emphasizing from the very beginning that the paper is meant to be used as a technical reference on GEM and related models, with apologies for the somewhat pedantic attention to details and formulas that stems directly from this premise. IMF Staff Papers (2008) 55, 243–284. doi:10.1057/imfsp.2008.8

Suggested Citation

  • Paolo Pesenti, 2008. "The Global Economy Model: Theoretical Framework," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 243-284, June.
  • Handle: RePEc:pal:imfstp:v:55:y:2008:i:2:p:243-284

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    References listed on IDEAS

    1. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo A. Pesenti, 2007. "Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 377-456 National Bureau of Economic Research, Inc.
    2. Rene Lalonde & Dirk Muir, 2007. "The Bank of Canada's Version of the Global Economy Model (BoC-GEM)," Technical Reports 98, Bank of Canada.
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    5. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
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    7. Marc-André Gosselin & René Lalonde, 2005. "MUSE: The Bank of Canada's New Projection Model of the U.S. Economy," Technical Reports 96, Bank of Canada.
    8. Laxton, Douglas & Pesenti, Paolo & Juillard, Michel & Karam, Philippe, 2006. "Welfare-based monetary policy rules in an estimated DSGE model of the US economy," Working Paper Series 613, European Central Bank.
    9. Laxton, Douglas & Pesenti, Paolo, 2003. "Monetary rules for small, open, emerging economies," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1109-1146, July.
    10. Paul Fenton & Stephen Murchison, 2006. "ToTEM: The Bank of Canada's New Projection and Policy-Analysis Model," Bank of Canada Review, Bank of Canada, vol. 2006(Autumn), pages 5-18.
    11. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
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    1. Adnan Haider Bukhari & Safdar Ullah Khan, 2008. "A Small Open Economy DSGE Model for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 963-1008.
    2. Bokan, N. & Gerali, A. & Gomes, S. & Jacquinot, P. & Pisani, M., 2018. "EAGLE-FLI: A macroeconomic model of banking and financial interdependence in the euro area," Economic Modelling, Elsevier, vol. 69(C), pages 249-280.
    3. Stefan Ried, 2009. "Putting Up a Good Fight: The Galí-Monacelli Model versus “The Six Major Puzzles in International Macroeconomicsâ€," SFB 649 Discussion Papers SFB649DP2009-020, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Aqib Aslam & Samya Beidas-Strom & Rudolfs Bems & Oya Celasun & Sinem Kılıç Çelik & Zsoka Koczan, 2016. "Trading on Their Terms? Commodity Exporters in the Aftermath of the Commodity Boom," IMF Working Papers 16/27, International Monetary Fund.
    5. Forni, L. & Gerali, A. & Pisani, M., 2010. "Macroeconomic Effects Of Greater Competition In The Service Sector: The Case Of Italy," Macroeconomic Dynamics, Cambridge University Press, vol. 14(05), pages 677-708, November.
    6. Ichiro Fukunaga & Naohisa Hirakata & Nao Sudo, 2009. "The Effects of Oil Price Changes on the Industry-Level Production and Prices in the U.S. and Japan," IMES Discussion Paper Series 09-E-24, Institute for Monetary and Economic Studies, Bank of Japan.
    7. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area," Economic Policy, CEPR;CES;MSH, vol. 26(67), pages 493-549, July.
    8. De Paoli, Bianca & Scott, Alasdair & Weeken, Olaf, 2010. "Asset pricing implications of a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2056-2073, October.
    9. Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2010. "Macroeconomic Effects of China's Fiscal Stimulus," IDB Publications (Working Papers) 1983, Inter-American Development Bank.
    10. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, 2014. "Assessing Policy Reforms for Italy Using ITEM and QUEST III," Rivista di Politica Economica, SIPI Spa, issue 3, pages 211-244, July-Sept.
    11. Lorenzo Burlon & Andrea Gerali & Alessandro Notarpietro & Massimiliano Pisani, 2017. "Macroeconomic effectiveness of non-standard monetary policy and early exit. A model-based evaluation," International Finance, Wiley Blackwell, vol. 20(2), pages 155-173, June.
    12. Martin Seneca, 2010. "A DSGE model for Iceland," Economics wp50, Department of Economics, Central bank of Iceland.
    13. Matthew Canzoneri & Robert E. Cumby & Behzad Diba & David Lopez-Salido, 2008. "The Macroeconomic Implications of a Key Currency," NBER Working Papers 14242, National Bureau of Economic Research, Inc.
    14. Lechthaler, Wolfgang & Snower, Dennis J., 2013. "Quadratic Labor Adjustment Costs, Business Cycle Dynamics, And Optimal Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 17(02), pages 464-475, March.
    15. Fabio DI DIO & Barbara ANNICCHIARICO & Francesco FELICI & Francesco NUCCI, "undated". "Macroeconomic Modelling and Policy Implications: an Assessment for Italy using ITEM and QUEST," EcoMod2010 259600045, EcoMod.
    16. Andrei Polbin & Sergey Drobyshevsky, 2014. "Developing a Dynamic Stochastic Model of General Equilibrium for the Russian Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 166P, pages 156-156.
    17. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, "undated". "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.
    18. Michal Andrle & Patrick Blagrave & Pedro Espaillat & Keiko Honjo & Benjamin L Hunt & Mika Kortelainen & René Lalonde & Douglas Laxton & Eleonara Mavroeidi & Dirk V Muir & Susanna Mursula & Stephen Snu, 2015. "The Flexible System of Global Models – FSGM," IMF Working Papers 15/64, International Monetary Fund.
    19. Lorenzo Burlon & Andrea Gerali & Alessandro Notarpietro & Massimiliano Pisani, 2015. "Inflation, financial conditions and non-standard monetary policy in a monetary union. A model-based evaluation," Temi di discussione (Economic working papers) 1015, Bank of Italy, Economic Research and International Relations Area.
    20. Tamim Bayoumi, 2016. "Dynamic Stochastic General Equilibrium Models and Their Discontents," International Journal of Central Banking, International Journal of Central Banking, vol. 12(3), pages 403-411, September.
    21. Lorenzo Burlon & Andrea Gerali & Alessandro Notarpietro & Massimiliano Pisani, 2016. "Non-standard monetary policy, asset prices and macroprudential policy in a monetary union," Temi di discussione (Economic working papers) 1089, Bank of Italy, Economic Research and International Relations Area.

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