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LOLA 3.0: Luxembourg OverLapping generation model for policy Analysis

Listed author(s):
  • Luca Marchiori

    ()

  • Olivier Pierrard

    ()

LOLA 2.0 is a dynamic general equilibrium model for the Luxembourg economy, which features overlapping generation dynamics, labormarket frictions à la Diamond-Mortensen-Pissarides and a New Open Economy Macroeconomics structure. This paper presents the model LOLA 3.0, which essentially integrates a financial sector to LOLA 2.0. In contrast to the existing dynamic stochastic general equilibrium (DSGE) literature, the financial sector does not intermediate between resident households and resident firms, but exports wealth management services. We calibrate the model to match the size of the financial sector in terms of employment, value added, net exports and taxes. The 2008 financial crisis has affected Luxembourg's financial sector and slowed inflows of cross-border workers. Because there is a lot of uncertainty surrounding future growth of the Luxembourg financial sector and cross-border worker inflows, we use LOLA 3.0 to study the evolution of the Luxembourg economy between 2015 and 2060 under alternative scenarios (high - medium - low).

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File URL: http://www.bcl.lu/en/publications/Working-papers/100/BCLWP100.pdf
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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 100.

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Length: 34 pages
Date of creation: Nov 2015
Handle: RePEc:bcl:bclwop:bclwp100
Contact details of provider: Web page: http://www.bcl.lu/

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  1. Deák, Szabolcs & Fontagné, Lionel & Maffezzoli, Marco & Marcellino, Massimiliano, 2011. "LSM: A DSGE model for Luxembourg," Economic Modelling, Elsevier, vol. 28(6), pages 2862-2872.
  2. Roberto Motto & Massimo Rostagno & Lawrence J. Christiano, 2010. "Financial Factors in Economic Fluctuations," 2010 Meeting Papers 141, Society for Economic Dynamics.
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