Smets-Wouters '03 model revisited - an implementation in gEcon

Klima, Grzegorz and Podemski, Karol and Retkiewicz-Wijtiwiak, Kaja and Sowińska, Anna E. (2015): Smets-Wouters '03 model revisited - an implementation in gEcon.

Abstract

This paper presents an implementation of the well-known Smets-Wouters 2003 model for Euro Area using the gEcon package - what we call the ``third generation'' DSGE modelling toolbox. Our exercise serves three goals. First, we show how gEcon can be used to implement an important - from both applications and historical perspective - model. Second, through rigorous exposition enforced by the gEcon’s block-agent paradigm we analyse all the Smets-Wouters model’s building blocks. Last, but not least, the implementation presented here serves as a natural starting point for important from applications point of view extensions, like opening the economy, introducing non-lump-sum taxes, or adding sectors to the model economy. Full model implementation is attached.

• Item Type: MPRA Paper
• Language: English
• Keywords: DSGE; monetary policy; staggered prices; staggered wages
• Subjects: C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C88 - Other Computer Software; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates

References

Klima, Grzegorz and Retkiewicz-Wijtiwiak, Kaja. 2014 (Apr.). On automatic derivation of first order conditions in dynamic stochastic optimisation problems. MPRA Paper 55612. University Library of Munich, Germany.

Smets, Frank and Wouters, Raf. 2003. An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area. Journal of the European Economic Association, 1(5), 1123–1175.