IDEAS home Printed from https://ideas.repec.org/p/euf/ecopap/0335.html
   My bibliography  Save this paper

QUEST III: an estimated DSGE model of the euro area with fiscal and monetary policy

Author

Listed:
  • Marco Ratto
  • Werner Roeger
  • Jan in 't Veld

Abstract

This paper develops a DSGE model for an open economy and estimates it on euro area data using Bayesian estimation techniques. The model features nominal and real frictions, as well as financial frictions in the form of liquidity constrained households. The model incorporates active monetary and fiscal policy rules (for government consumption, investment, transfers and wage taxes) and can be used to analyse the effectiveness of stabilisation policies. To capture the unit root character of macroeconomic time-series we allow for stochastic trend in TFP, but instead of filtering data prior to estimation, we estimate the model in growth rates and stationary nominal ratios.

Suggested Citation

  • Marco Ratto & Werner Roeger & Jan in 't Veld, 2008. "QUEST III: an estimated DSGE model of the euro area with fiscal and monetary policy," European Economy - Economic Papers 2008 - 2015 335, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0335
    as

    Download full text from publisher

    File URL: https://ec.europa.eu/economy_finance/publications/pages/publication12918_en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Julia Darby & Jacques Melitz, 2008. "Social spending and automatic stabilizers in the OECD [‘Real-time output gaps in ex post policy analysis: A red herring?’]," Economic Policy, CEPR;CES;MSH, vol. 23(56), pages 716-756.
    2. Michael J. Artis & Luca Onorante, 2007. "The Economic Importance of Fiscal Rules," Palgrave Macmillan Books, in: David Cobham (ed.), The Travails of the Eurozone, chapter 6, pages 123-145, Palgrave Macmillan.
    3. Melitz, Jacques & Darby, Julia, 2007. "Labour Market Adjustment, Social Spending and the Automatic Stabilizers in the OECD," CEPR Discussion Papers 6230, C.E.P.R. Discussion Papers.
    4. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270.
    5. Günter Coenen & Roland Straub, 2005. "Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area," International Finance, Wiley Blackwell, vol. 8(3), pages 435-470, December.
    6. Michel Juillard & Ondrej Kamenik & Michael Kumhof & Douglas Laxton, 2006. "Measures of Potential Output from an Estimated DSGE Model of the United States," Working Papers 2006/11, Czech National Bank.
    7. Antonio Fatás & Ilian Mihov, 2003. "The Case for Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1419-1447.
    8. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
    9. Lorenzo Forni & Libero Monteforte, 2006. "The estimated general equilibrium effects of fiscal policy: the case of the euro area," Computing in Economics and Finance 2006 142, Society for Computational Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bernadette Biatour & Chantal Kegels & Jan van der Linden & Dirk Verwerft, 2017. "Working Paper 01-17 - Public Investment in Belgium - Current State and Economic Impact," Working Papers 1701, Federal Planning Bureau, Belgium.
    2. Janos Varga & Jan in 't Veld, 2009. "A model-based assessment of the macroeconomic impact of EU structural funds on the new Member States," European Economy - Economic Papers 2008 - 2015 371, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Robert Kollmann, 2012. "Limited asset market participation and the consumption‐real exchange rate anomaly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 566-584, May.
    4. Ilori, Ayobami E. & Paez-Farrell, Juan & Thoenissen, Christoph, 2022. "Fiscal policy shocks and international spillovers," European Economic Review, Elsevier, vol. 141(C).
    5. Michal Andrle & Patrick Blagrave & Pedro Espaillat & Ms. Keiko Honjo & Mr. Benjamin L Hunt & Mika Kortelainen & René Lalonde & Mr. Douglas Laxton & Eleonara Mavroeidi & Mr. Dirk V Muir & Susanna Mursu, 2015. "The Flexible System of Global Models – FSGM," IMF Working Papers 2015/064, International Monetary Fund.
    6. Martin Aarøe Christensen, 2015. "A CGE model with ICT and R&D-driven endogenous growth: A detailed model description," JRC Research Reports JRC97908, Joint Research Centre (Seville site).
    7. Balcilar, Mehmet & Gupta, Rangan & Kotzé, Kevin, 2015. "Forecasting macroeconomic data for an emerging market with a nonlinear DSGE model," Economic Modelling, Elsevier, vol. 44(C), pages 215-228.
    8. Philip Arestis, 2015. "Coordination of fiscal with monetary and financial stability policies can better cure unemployment," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(1), pages 233-247, April.
    9. Mehmet Balcilar & Rangan Gupta & Kevin Kotze, 2013. "Forecasting South African Macroeconomic Data with a Nonlinear DSGE Model," Working Papers 201313, University of Pretoria, Department of Economics.
    10. Werner Roeger & Janos Varga & Jan in 't Veld, 2008. "Structural Reforms in the EU: A simulation-based analysis using the QUEST model with endogenous growth," European Economy - Economic Papers 2008 - 2015 351, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    11. Fritz Breuss, 2009. "Ten Years of EMU – Achievements, Weaknesses, Challenges," Austrian Economic Quarterly, WIFO, vol. 14(1), pages 49-72, April.
    12. Varga, Janos & in 't Veld, Jan, 2011. "A model-based analysis of the impact of Cohesion Policy expenditure 2000-06: Simulations with the QUEST III endogenous R&D model," Economic Modelling, Elsevier, vol. 28(1-2), pages 647-663, January.
    13. Acosta, Juan & Rancan, Antonella & Sergi, Francesco, 2022. "Centralised and Decentralised Approaches to Multi-Country Macroeconometric Modelling at the Commission of the European Communities: The Short-Lived EUROLINK Model," Economics & Statistics Discussion Papers esdp22081, University of Molise, Department of Economics.
    14. Marco Ratto & Werner Roeger & Jan in 't Veld, 2010. "Using a DSGE model to look at the recent boom-bust cycle in the US," European Economy - Economic Papers 2008 - 2015 397, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    15. Francesca D'Auria & Andrea Pagano & Marco Ratto & Janos Varga, 2009. "A comparison of structural reform scenarios across the EU member states - Simulation-based analysis using the QUEST model with endogenous growth," European Economy - Economic Papers 2008 - 2015 392, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    16. Francesca D'Auria & Kieran Mc Morrow & Karl Pichelmann, 2008. "Economic impact of migration flows following the 2004 EU enlargement process - A model based analysis," European Economy - Economic Papers 2008 - 2015 349, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    17. Berger, Johannes & Strohner, Ludwig, 2020. "Documentation of the PUblic Policy Model for Austria and other European countries (PUMA)," Research Papers 11, EcoAustria – Institute for Economic Research.
    18. Dumitru BELDIMAN & Alia Gabriela DUȚĂ, 2020. "Possibilities to Quantify the Impact of Accessing Structural Funds and Cohesion Using Econometric Models," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(22), pages 21-33, November.
    19. Kollmann, Robert, 2009. "Domestic Financial Frictions: Implications for International Risk Sharing, Real Exchange Rate Volatility and International Business Cycles," MPRA Paper 70348, University Library of Munich, Germany.
    20. Alban Moura, 2020. "LED: An estimated DSGE model of the Luxembourg economy for policy analysis," BCL working papers 147, Central Bank of Luxembourg.
    21. Martin Aarøe Christensen, 2015. "A CGE model with ICT and R&D-driven endogenous growth: A general description," JRC Research Reports JRC97902, Joint Research Centre (Seville site).
    22. Péter Halmai & Viktória Vásáry, 2012. "Convergence crisis: economic crisis and convergence in the European Union," International Economics and Economic Policy, Springer, vol. 9(3), pages 297-322, September.
    23. Werner Roeger & Janos Varga & Jan in 't Veld, 2010. "How to close the productivity gap between the US and Europe: A quantitative assessment using a semi-endogenous growth model," European Economy - Economic Papers 2008 - 2015 399, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ratto Marco & Roeger Werner & Veld Jan, 2006. "Fiscal Policy in an estimated open-economy model for the EURO area," Computing in Economics and Finance 2006 43, Society for Computational Economics.
    2. Ratto, Marco & Roeger, Werner & Veld, Jan in 't, 2009. "QUEST III: An estimated open-economy DSGE model of the euro area with fiscal and monetary policy," Economic Modelling, Elsevier, vol. 26(1), pages 222-233, January.
    3. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    4. Luca Agnello & Ricardo M. Sousa, 2014. "The Determinants of the Volatility of Fiscal Policy Discretion," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 91-115, March.
    5. Forni, Lorenzo & Monteforte, Libero & Sessa, Luca, 2009. "The general equilibrium effects of fiscal policy: Estimates for the Euro area," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 559-585, April.
    6. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226, National Bureau of Economic Research, Inc.
    7. Philippe Aghion & David Hemous & Enisse Kharroubi, 2009. "Credit Constraints, Cyclical Fiscal Policy and Industry Growth," NBER Working Papers 15119, National Bureau of Economic Research, Inc.
    8. Davide Furceri & Annabelle Mourougane, 2010. "The Effects of Fiscal Policy on Output: A DSGE Analysis," OECD Economics Department Working Papers 770, OECD Publishing.
    9. Székely, István P. & Turrini, Alessandro & Röger, Werner, 2010. "Banking crises, Output Loss and Fiscal Policy," CEPR Discussion Papers 7815, C.E.P.R. Discussion Papers.
    10. Stylianos Asimakopoulos & Marco Lorusso & Luca Pieroni, 2021. "Can public spending boost private consumption?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1275-1313, November.
    11. Furceri, Davide, 2010. "Stabilization effects of social spending: Empirical evidence from a panel of OECD countries," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 34-48, March.
    12. Zeira, Joseph & Strawczynski, Michel, 2009. "Cyclicality of Fiscal Policy: Permanent and Transitory Shocks," CEPR Discussion Papers 7271, C.E.P.R. Discussion Papers.
    13. Markus Brueckner & Daniel Lederman, 2018. "Inequality and economic growth: the role of initial income," Journal of Economic Growth, Springer, vol. 23(3), pages 341-366, September.
    14. Andres, Javier & Domenech, Rafael & Fatas, Antonio, 2008. "The stabilizing role of government size," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 571-593, February.
    15. Luca Agnello & Ricardo M. Sousa, 2009. "The Determinants of Public Deficit Volatility," NIPE Working Papers 11/2009, NIPE - Universidade do Minho.
    16. Furlanetto, Francesco, 2011. "Fiscal stimulus and the role of wage rigidity," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 512-527, April.
    17. Erceg, Christopher J. & Lindé, Jesper, 2013. "Fiscal consolidation in a currency union: Spending cuts vs. tax hikes," Journal of Economic Dynamics and Control, Elsevier, vol. 37(2), pages 422-445.
    18. Hafedh Bouakez & Nooman Rebei, 2007. "Why does private consumption rise after a government spending shock?," Canadian Journal of Economics, Canadian Economics Association, vol. 40(3), pages 954-979, August.
    19. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
    20. Sebastian Gechert, 2015. "What fiscal policy is most effective? A meta-regression analysis," Oxford Economic Papers, Oxford University Press, vol. 67(3), pages 553-580.

    More about this item

    Keywords

    QUEST; QUEST model; DGSE; DSGE modelling; fiscal policy; stabilisation policies; euro area; Ratto ; Roeger ; Jan in 't Veld;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0335. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECFIN INFO (email available below). General contact details of provider: https://edirc.repec.org/data/dg2ecbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.