scholarly journals Optimal Environmental Tax Rate in an Open Economy with Labor Migration—An E-DSGE Model Approach

2019 ◽  
Vol 11 (19) ◽  
pp. 5147 ◽  
Author(s):  
Ying Tung Chan
Keyword(s):  
Open Economy ◽  
Labor Migration ◽  
Social Planner ◽  
Dsge Models ◽  
Environmental Tax ◽  
Closed Economy ◽  
Dsge Model ◽  
Tax Rate ◽  
Dynamic Stochastic ◽  
Optimal Environmental Tax

Recent research has started to apply environmental dynamic stochastic general equilibrium (E-DSGE) models for climate policy analysis. However, all of the studies assume a closed economy setting, where there is no interaction of the economy with an outside economy; this paper fills the gap by constructing a two-city E-DSGE model that features labor migration. With the model, we solve for the optimal environmental tax rate determined by a Ramsey social planner, who maximizes household utility and takes into account the policy’s impact on labor migration. We find the following. (i) The optimal environmental tax rate should be more volatile and procyclical than the rates predicted in the aforementioned literature. (ii) In the closed economy setting, a higher environmental tax rate would always dampen production, while in our setting, it could stimulate output through deterring labor outflow and attracting labor inflow. (iii) We complement the existing literature by emphasizing that the optimal environmental tax rate in a city should respond not only to the shocks that occur internally, but also to those that occur in the opponent city. In particular, we find that it is optimal to reduce the environmental tax rate if a positive total factor productivity (TFP) shock occurs in the neighbor city.

How do the financial and oil sanctions affect the Iran's economy: a DSGE framework

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Seyyed Reza Nakhli ◽  
Monireh Rafat ◽  
Rasul Bakhshi Dastjerdi ◽  
Meysam Rafei
Keyword(s):  
Open Economy ◽  
Economic Effect ◽  
Current Paper ◽  
Dsge Models ◽  
Dsge Model ◽  
Content Type ◽  
Macroeconomic Variables ◽  
The World ◽  
Dynamic Stochastic ◽  
The Government

PurposeThe purpose of the current paper is to analyze the simultaneous effects of oil sanctions and financial sanctions on Iran's macroeconomic variables in a small open economy in the dynamic stochastic general equilibrium (DSGE) framework.Design/methodology/approachA DSGE model with the new Keynesian approach has been designed for the above mentioned purpose giving consideration to households, production, trade, oil, government and central bank sectors. All of the parameters were calibrated by using geometric means of macroeconomic variables in 2004–2017 as the steady-state values of the variables in the static model.FindingsAmplifying the intensity of the oil sanctions reduces oil production due to decreasing investment, technology and export of oil and reduces the central bank's foreign reserves ratio to the money base that leads to an increasing exchange rate. Furthermore, oil sanctions decrease the government revenues due to a decrease in oil export and by the government imposing an expansionary fiscal policy in the form of increasing current expenditure and preserving construction expenditure to prevent deepening the recession, which causes budget deficit and then the issue of more bonds with a higher nominal interest rate. On the other hand, financial sanctions raise transaction costs and marginal costs in the trade sectors that lead to inflation and a decrease in nonoil export and various kinds of imports. Due to inflation and uncertainty, consumption of a household increases and investment expenditure of a household decreases.Originality/valueTo the best of the author's knowledge, few studies in the world have analyzed the economic effect of the sanctions in the framework of DSGE models. There is no study in Iran to date which investigates the effects of the sanctions in the form of a DSGE model. So, this paper is the first study in Iran and one of the few studies in the world using a DSGE model for analyzing the effects of sanctions. Imposing three kinds of oil sanctions in addition to a financial sanction is another innovation of the current paper.

scholarly journals Three essays on bayesian analysis of nonlinear DSGE models

2019 ◽  
Author(s):  
◽  
Sanha Noh
Keyword(s):  
Decision Making ◽  
Linear Model ◽  
Open Economy ◽  
Financial Frictions ◽  
Small Open Economy ◽  
Dsge Models ◽  
Dsge Model ◽  
Productivity Shock ◽  
Dynamic Stochastic ◽  
The Impact

The 2008 financial crisis has highlighted the importance of nonlinear features of our economy including risks, uncertainty shocks, rare disasters, structural changes, zero-lower bound, and occasionally binding constraints. Macroeconomists have tried to build nonlinear models to analyze these interesting features and take the models to the data. Dynamic Stochastic General Equilibrium (DSGE) model that essentially takes into account dynamic optimal decision making of households, firms, and government is one of the useful tools to deal with these issues. In the model, there are various random shocks causing the macroeconomic variables such as GDP, consumption, and investment to fluctuate over time. Above all things, the nonlinear approximation of the model allows us to capture the impact of risk on decision making. The focus of this dissertation is to provide a novel Bayesian estimation procedure for the estimation of nonlinear DSGE model and apply the proposed methodologies to analyze some nonlinear issues related to DSGE models. ... In the third chapter, I investigate a real business cycle (RBC) model for a small open economy by estimating the model solved up to second order. The higher order approximation more closely approximates the original model than the linear approximation. In this study, I evaluate the likelihood of the nonlinear model using the Gaussian mixture a lter (GMF) and employ the GMF within the MCMC algorithm. From the estimation results of the quadratic approximation, I obtain the following implications for a small open economy: First, the quadratic RBC model with financial frictions does a good job at identifying the parameters of the nonstationary productivity shock process. Second, the observed data favor the quadratic benchmark RBC and financial-friction models over the linear models. Third, the quadratic RBC model with financial frictions does a better job at capturing serial correlations of the observed data than the linear model with financial frictions. Fourth, contrary to the linear model with financial frictions, a nonstationary productivity shock in the quadratic model plays an important role in explaining Argentine economic fluctuations.

scholarly journals The Public Expenditures and Economic Growth: DSGE model for Bosnia and Herzegovina

2016 ◽  
Vol 6 (1) ◽  
pp. 68
Author(s):  
Nikolina Bošnjak
Keyword(s):  
Economic Growth ◽  
General Equilibrium ◽  
Bosnia And Herzegovina ◽  
Open Economy ◽  
Small Open Economy ◽  
Main Tool ◽  
Public Expenditures ◽  
Dsge Models ◽  
Dsge Model ◽  
Dynamic Stochastic

The DSGE (Dynamic Stochastic General Equilibrium) methodology attempts to explain the behavior of aggregate economic phenomena, such as economic growth, business cycle, and the effects of monetary and fiscal policy, using macroeconomic models derived from microeconomic foundations. DSGE models study the economy evolution (dynamics) over time. They take into consideration the fact that economy may be affected with random (stochastic) shocks. Still, they include all markets in the economy and assume that those markets balance out rapidly (general equilibrium). DSGE models have become the main tool of macroeconomic analysis, and until now, a huge number of different DSGE models have been developed. They are used for forecasting, different economic policies analysis and giving policy advices. Due to data scarcity and lack of knowledge, indevelopment and many other reasnos, until now there was no application of DSGE models to Bosnia and Herzegovina case. That is why we were motivated to calibrate a small size DSGE model for Bosnia and Herzegovina. In this research we will calibrate a small open economy DSGE model for Bosnia and Herzegovina and use its results to give some advices for economic growth of Bosnia and Herzegovina improvement. The special attention will be given to Public expenditures and TFP influence on Bosnian macroeconomic variables.

scholarly journals The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Phuong V. Nguyen
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Small Open Economy ◽  
Research Paper ◽  
New Keynesian ◽  
Dsge Model ◽  
Content Type ◽  
Business Cycle Fluctuations ◽  
Dynamic Stochastic ◽  
The Business Cycle

PurposeThe primary purpose of this paper is to investigate the sources of the business cycle fluctuations in Vietnam. To this end, the author develops a small open economy New Keynesian dynamic stochastic general equilibrium (SOE-NK-DSGE) model. Accordingly, this model includes various features, such as habit consumption, staggered price, price indexation, incomplete exchange-rate pass-through (ERPT), the failures of the law of one price (LOOP) and the uncovered interest rate parity. It is then estimated by using the Bayesian technique and Vietnamese data 1999Q1–2017Q1. Based on the estimated model, this paper analyzes the sources of the business cycle fluctuations in this emerging economy. Indeed, this research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.Design/methodology/approachA SOE-NK-DSGE model—Bayesian estimation.FindingsThis paper analyzes the sources of the business cycle fluctuations in Vietnam.Originality/valueThis research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.

scholarly journals TECHNOLOGY SHOCKS AND BUSINESS CYCLES IN INDIA

2017 ◽  
Vol 23 (5) ◽  
pp. 1721-1756 ◽  
Author(s):  
Shesadri Banerjee ◽  
Parantap Basu
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Emerging Market ◽  
Small Open Economy ◽  
Annual Data ◽  
Technology Shocks ◽  
Demand Side ◽  
Aggregate Fluctuations ◽  
Dsge Model ◽  
Dynamic Stochastic

In this paper, we develop a small open economy New Keynesian dynamic stochastic general equilibrium (DSGE) model to understand the relative importance of two key technology shocks, Hicks neutral total factor productivity (TFP) shock and investment specific technology (IST) shock for an emerging market economy like India. In addition to these two shocks, our model includes three demand side shocks such as fiscal spending, home interest rate, and foreign interest rate. Using a Bayesian approach, we estimate our DSGE model with Indian annual data for key macroeconomic variables over the period of 1971–2010, and for subsamples of pre-liberalization (1971–1990) and post-liberalization (1991–2010) periods. Our study reveals three main results. First, output correlates positively with TFP, but negatively with IST. Second, TFP and IST shocks are the first and the second most important contributors to aggregate fluctuations in India. In contrast, the demand side disturbances play a limited role. Third, although TFP plays a major role in determining aggregate fluctuations, its importance vis-à-vis IST has declined during the post liberalization era. We find that structural shifts of nominal friction and relative home bias for consumption to investment in the post-liberalization period can account for the rising importance of the IST shocks in India.

scholarly journals Fiscal and monetary policy in new Keynesian DSGE models

2014 ◽  
Author(s):  
Πέτρος Βαρθαλίτης
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Open Economy ◽  
Small Open Economy ◽  
New Keynesian ◽  
Dsge Models ◽  
Dsge Model ◽  
Keynesian Model ◽  
Monetary And Fiscal Policy ◽  
Fiscal And Monetary Policy

This thesis is about monetary and fiscal policy in New Keynesian DSGE models. Chapter 2 presents the baseline New Keynesian DSGE model. Monetary policy is in the form of a simple interest rate Taylor-type policy rule, while fiscal policy is exogenous. Chapter 3 extends the model of Chapter 2 to include fiscal policy. Now, both monetary and fiscal policy are allowed to follow feedback rules. Chapter 4 sets up a New Keynesian model of a semi-small open economy with sovereign risk premia. Finally, Chapter 5 builds a New Keynesian DSGE model consisting of two heterogeneous countries participating in a monetary union.Throughout most of the thesis, policy is conducted via "simple", "implementable" and "optimized" feedback policy rules. Using such rules, the aim of policy is twofold: firslty, it aims to stabilize the economy when the latter is hit by shocks; secondly, it aims to improve the economy's resource allocation.

scholarly journals A NOTE ON AN EXTENSION OF A CLASS OF SOLUTIONS TO DYNAMIC PROGRAMMING PROBLEMS ARISING IN ECONOMIC GROWTH

2011 ◽  
Vol 16 (3) ◽  
pp. 472-476 ◽  
Author(s):  
Jürgen Antony ◽  
Alfred Maußner
Keyword(s):  
Economic Growth ◽  
Dynamic Programming ◽  
General Equilibrium ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Models ◽  
Dsge Model ◽  
Savings Rate ◽  
Dynamics And Control ◽  
Dynamic Stochastic ◽  
And Control

This note extends the findings of Benhabib and Rusticchini [Journal of Economic Dynamics and Control 18, 807–813 (1994)], who provide a class of dynamic stochastic general equilibrium (DSGE) models whose solution is characterized by a constant savings rate. We show that this class of models may be interpreted as a standard–representative agent DSGE model with costly adjustment of capital.

scholarly journals Monetary Policy Analysis with Potentially Misspecified Models

2009 ◽  
Vol 99 (4) ◽  
pp. 1415-1450 ◽  
Author(s):  
Marco Del Negro ◽  
Frank Schorfheide
Keyword(s):  
Policy Analysis ◽  
Recent Literature ◽  
Model Misspecification ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Models ◽  
Estimation Of Parameters ◽  
Dsge Model ◽  
Misspecified Models ◽  
Trade Offs ◽  
Dynamic Stochastic

Policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models faces two challenges: estimation of parameters that are relevant for policy trade-offs, and treatment of the deviations from the cross-equation restrictions. Using post-1982 US data, we study the robustness of the policy prescriptions from a state-of-the-art DSGE model with respect to two approaches to model misspecification pursued in the recent literature: (i) adding shocks to the DSGE model and/or generalizing the processes followed by these shocks; and (ii) explicit modeling of deviations from cross-equation restrictions (DSGE-VAR). (JEL C51, E13, E43, E52, E58)

scholarly journals A small open economy DSGE model with workers' remittances

2020 ◽  
Vol 47 (6) ◽  
pp. 1339-1361
Author(s):  
Muhammad Rehman ◽  
Sajawal Khan ◽  
Zafar Hayat ◽  
Faruk Balli
Keyword(s):  
Open Economy ◽  
Emerging Market ◽  
Small Open Economy ◽  
Trade Deficit ◽  
Current Account Balance ◽  
Emerging Market Economies ◽  
Dsge Model ◽  
Content Type ◽  
Market Economies ◽  
Dynamic Stochastic

PurposeIn this paper, the authors develop and estimate a small open economy dynamic stochastic general equilibrium (DSGE) model with an enriched micro-founded specification to account for foreign remittances, an important source that helps bridge the trade gap in many developing and emerging market economies.Design/methodology/approachAlthough the authors’ specification provides a general frame for the analysis of the role of workers' remittances, they motivate and calibrate the model with specific focus on Pakistan, where most of the trade deficit is met through the remittance channel.FindingsThe results indicate that a negative shock to workers' remittances hampers real growth via decreased consumption and imported investment goods, while it builds pressure on exchange rate and hence worsens current account balance. These results indicate that too much dependence on workers' remittances to help meet foreign exchange deficits may potentially leave the economy in doldrums in case sizable negative shocks occur to the flow of foreign remittances.Originality/valueThe authors develop and estimate a small open economy DSGE model with an enriched micro-founded specification to account for foreign remittances, an important source that helps bridge the trade gap in many developing and emerging market economies.

scholarly journals Environmental Tax Reform and the “Double Dividend” Hypothesis in a Small Open Economy

2019 ◽  
Vol 17 (1) ◽  
pp. 217 ◽  
Author(s):  
Zhibo Zhou ◽  
Weiguo Zhang ◽  
Xinxin Pan ◽  
Jiangfeng Hu ◽  
Ganlin Pu
Keyword(s):  
Open Economy ◽  
Consumer Goods ◽  
Tax Reform ◽  
Family Income ◽  
Small Open Economy ◽  
Double Dividend ◽  
Policy Implications ◽  
Environmental Tax ◽  
Pigouvian Tax ◽  
Tax Rate

In this paper, we build and analyze a general equilibrium model to evaluate the effects of environment tax reform on a small open economy in a “suboptimal environment” with existing tax distortions. We then use the macroeconomic data from the Chongqing Municipality in China to conduct simulations to empirically test our analytic results. Our main findings include the followings. First, an increase in environmental tax rate can effectively reduce the use of polluting consumer goods by households as well as investment in polluting factors by enterprises. Hence, an increase in environmental tax rate can improve environmental quality and obtain “environmental dividend”. Second, an increase in environmental tax rate can negatively impact employment, family income and economic growth. Hence, there is no “non-environmental dividend” effect. Third, an increased environmental tax rate has both substitution effect and income effect on household consumption. On the one hand, it motivates households to substitute polluting consumer goods with clean consumer goods. On the other hand, it lowers the total consumption level of households. Fourth, we show that the “double dividend” hypothesis on environmental tax is invalid. And the optimal environmental tax under the suboptimal environment is lower than the Pigouvian tax rate. Finally, we discuss the policy implications of our results.

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