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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.

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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.

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