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Modeling and Implementation of Optimal Fiscal and Monetary Policy Algorithms in Multi-Country Econometric Models

Objective

This project contributes to the evaluation of macroeconomic policy by advancing the analysis of optimal fiscal and monetary policy in monetary union such as the European one. This work will result in the addition of new numerical tools, specially designed for the computation of optimal policy in large macro-econometric models. Such multi-country models are necessary to take into account the diversity of the countries making now the European Union. These new tools for the computation of optimal policy will be added to DYNARE, a public domain platform for the simulation and estimation of dynamic stochastic general equilibrium models (DSGE), that is increasingly used in policy making institution and in academic research alike. New models are proposed to analyze the contribution of optimal policy to smooth shocks in a union of heterogeneous countries with rigidities in labor and financial markets. In that framework, special attention is given to the dynamics of public debt. Systematic models comparison is made possible thanks to a database of macroeconomic models currently in use in policy making institutions around the world. New numerical tools are added to DYNARE that provide the computation of optimal policy, either under commitment, in a timeless perspective or under discretion, for a general class of nonlinear models. Particular attention is given to correct linear quadratic approximation of these models. Extensions are proposed to deal with partial information. These tools shall also permit to perform Bayesian estimation of models under the assumption that the policies followed were optimal. Special emphasis is placed on the definition of priors. Given the complexity of the numerical computations, we stress speed of computation and the development of parallel algorithms. Altogether, this project should represent a very significant step forward towards better models and better tools for the formulation of macroeconomic policies.

Call for proposal

FP7-SSH-2007-1
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Funding Scheme

CP-FP - Small or medium-scale focused research project

Coordinator

Centre Pour La Recherche Economique Et Ses Applications
Address
Boulevard Jourdan 48
75014 Paris
France
Activity type
Research Organisations
EU contribution
€ 711 500
Administrative Contact
Michel Juillard (Prof.)

Participants (5)

LONDON METROPOLITAN UNIVERSITY
United Kingdom
EU contribution
€ 124 888
Address
Holloway Road 166 220
N7 8DB London
Activity type
Higher or Secondary Education Establishments
Administrative Contact
Joseph Pearlman (Dr.)
AGENCIA ESTATAL CONSEJO SUPERIOR DEINVESTIGACIONES CIENTIFICAS
Spain
EU contribution
€ 187 334
Address
Calle Serrano 117
28006 Madrid
Activity type
Research Organisations
Administrative Contact
Albert Marcet (Prof.)
Center for Financial Studies at the University of Frankfurt
Germany
EU contribution
€ 187 334
Address
Grueneburgplatz 1
60323 Frankfurt Am Main
Activity type
Research Organisations
Administrative Contact
Volker Wieland (Prof.)
JRC -JOINT RESEARCH CENTRE- EUROPEAN COMMISSION
Belgium
EU contribution
€ 76 500
Address
Rue De La Loi 200
1049 Brussels
Activity type
Research Organisations
Administrative Contact
Barbara Marchetti (Ms.)
UNIVERSITY OF SURREY
United Kingdom
EU contribution
€ 62 444
Address
Stag Hill
GU2 7XH Guildford
Activity type
Higher or Secondary Education Establishments
Administrative Contact
Sue Angulatta (Ms.)