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SIGMA: A New Open Economy Model for Policy Analysis

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Abstract

In this paper, we describe a new multi-country open economy SDGE model named \"SIGMA\" that we have developed as a quantitative tool for policy analysis. We compare SIGMA's implications to those of an estimated large scale econometric policy model (the FRB/Global model) for an array of shocks that are often examined in policy simulations. We show that SIGMA?s implications for the near-term responses of key variables are generally similar to those of FRB/Global. Nevertheless, some quantitative disparities between the two models remain due to certain restrictive aspects of SIGMA?s optimization-based framework. We conclude by using long-term simulations to illustrate some areas of comparative advantage of our SDGE modeling framework.

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  • Christopher J. Erceg & Luca Guerrieri & Christopher J. Gust, 2005. "SIGMA: A New Open Economy Model for Policy Analysis," International Finance Discussion Papers 835, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:835
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    Keywords

    SDGE model; open economy macroeconomics;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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