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A Rational Expectations Model for Simulation and Policy Evaluation of the Spanish Economy

  • J.E. Boscá

    (University of Valencia, Spain)

  • A. Díaz

    (Ministry of Economics and Finance, Spain)

  • R. Doménech

    (Economic Bureau of the Prime Minister, Spain. University of Valencia, Spain)

  • J. Ferri

    (University of Valencia, Spain)

  • E. Pérez

    (Ministry of Economics and Finance, Spain)

  • L. Puch

    (FEDEA, Universidad Complutense and ICAE, Spain)

This paper describes a Rational Expectations Model of the Spanish economy, REMS, which is in the tradition of small open economy dynamic general equilibrium models, with a strongly microfounded system of equations. The model is built on standard elements, but incorporates some distinctive features to provide an accurate description of the Spanish economy. We contribute to the existing models of the Spanish economy by adding search and matching rigidities to a small open economy framework. Our model also incorporates habits in consumption and rule-of-thumb households. As Spain is a member of EMU, we model the interaction between a small open economy and monetary policy in a monetary union. The model is primarily constructed to serve as a simulation tool at the Spanish Ministry of Economic Affairs and Finance. As such, it provides a great deal of information regarding the transmission of policy shocks to economic outcomes. The paper describes the structure of the model in detail, as well as the estimation and calibration technique and some examples of simulations.

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Paper provided by International Economics Institute, University of Valencia in its series Working Papers with number 0706.

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Length: 53 pages
Date of creation: Dec 2007
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Handle: RePEc:iei:wpaper:0706
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