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LOLA 2.0: Luxembourg OverLapping generation model for policy Analysis

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  • Luca Marchiori

  • Olivier Pierrard

Abstract

Beyond cyclical movements, it may be helpful to understand how structural forces or policies shape an economy in the longer term. With such remote horizons, it is crucial to base analysis on an appropriate tool. In this paper, we build an overlapping generation structure with New Open Economy Macroeconomics and labour market frictions à la Diamond-Mortensen-Pissarides. The main novelty over LOLA 1.0 is the integration of current account and exchange rate dynamics according to the New Open Economy Macroeconomics approach. We calibrate themodel on Luxembourg data. Byway of illustration, we study the interactions between expected demographic changes, labour market dynamics and public finance, and we look at the recently proposed policy responses.

Suggested Citation

  • Luca Marchiori & Olivier Pierrard, 2012. "LOLA 2.0: Luxembourg OverLapping generation model for policy Analysis," BCL working papers 76, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp076
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    References listed on IDEAS

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    Cited by:

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    3. Kerndler, Martin, 2023. "Occupational safety in a frictional labor market," Labour Economics, Elsevier, vol. 83(C).
    4. Alban Moura, 2020. "LED: An estimated DSGE model of the Luxembourg economy for policy analysis," BCL working papers 147, Central Bank of Luxembourg.
    5. Marchiori, Luca & Pierrard, Olivier, 2017. "How does global demand for financial services promote domestic growth in Luxembourg? A dynamic general equilibrium analysis," Economic Modelling, Elsevier, vol. 62(C), pages 103-123.
    6. Alban Moura & Kyriacos Lambrias, 2018. "LU-EAGLE: A DSGE model for Luxembourg within the euro area and global economy," BCL working papers 122, Central Bank of Luxembourg.
    7. Francesco Sergi, 2020. "The Standard Narrative about DSGE Models in Central Banks’ Technical Reports," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 27(2), pages 163-193, March.

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    Keywords

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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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