MONROE project multi-country DSGE model for EU-28 presented at FRAME conference
Prof. Tom Holden will present the first design and working version of MONROE multi-country DSGE model for EU-28 that is built using fully endogenous growth framework and is designed in order to evaluate the impacts of R&I policies and measures. DSGE models are ideal for policy work, since they may be structurally estimated on timeseries data, and since their parameters are invariant to changing policy. However, incorporating endogenous growth into a DSGE model without generating wildly counter-factual policy prescriptions is incredibly difficult. In this bid we will be addressing these challenges from a number of directions, such as exploring interactions with financial rigidities, exploring technological transfer, modelling spatial diffusion of ideas, and modelling and computationally dealing with structural change. Our work with structural change will produce mechanisms by which short-run fluctuations can potentially have significant long-run distributional consequences, as wealth is shifted between low-skilled, high-skilled and asset-holding agents. While building small DSGE models with endogenous growth is difficult, getting it in to a medium-scale, multi-country framework is much harder, as there are so many additional interactions which might lead to implausible behaviour. One of the key deliverables of this project will be such a model. The model’s core is based upon Holden (2014) and Holden (2016), but with a variety of standard New Keynesian frictions, in order to fully capture the channels from the short-run (business cycles, or policy changes) to the long-run. The model will be estimated on European data, and serious policy exercises will be conducted within it, using Dynare .
Countries
Netherlands