Global DSGE models

We introduce our GDSGE framework and a novel global solution method, called simultaneous transition and policy function iterations (STPFIs), for solving dynamic stochastic general equilibrium models. The framework encompasses many well-known incomplete markets models with highly nonlinear dynamics such as models of financial crises and models with rare disasters including the current COVID-19 pandemic. Using consistency equations, our method is most effective at solving models featuring endogenous state variables with implicit laws of motion such as wealth or consumption shares. Finally, we incorporate this method in an automated and publicly available toolbox that solves many important models in the aforementioned topics, and in many cases, more efficiently and/or accurately than their original algorithms. © 2023 Elsevier Inc.

Global DSGE Models

We introduce our GDSGE framework and a novel global solution method, called simultaneous transition and policy function iterations (STPFIs), for solving dynamic stochastic general equilibrium models. The framework encompasses many well-known incomplete markets models with highly nonlinear dynamics such as models of financial crises and models with rare disasters including the current COVID-19 pandemic. Using consistency equations, our method is most effective at solving models featuring endogenous state variables with implicit laws of motion such as wealth or consumption shares. Finally, we incorporate this method in an automated and publicly available toolbox that solves many important models in the aforementioned topics, and in many cases, more efficiently and/or accurately than their original algorithms.

The macroeconomic effect of COVID-induced economic policy uncertainty in Nigeria: a DSGE approach

Purpose This study examined the macroeconomic effects of COVID-19-induced economic policy uncertainty (EPU) in Nigeria. The study considered the effects of three related shocks: EPU, COVID-19 and correlated economic policy uncertainty and COVID-19 shock. Design/methodology/approach First, the study presented VAR evidence that fiscal and monetary policy uncertainty depresses real output. Thereafter, a nonlinear DSGE model with second-moment fiscal and monetary policy shocks was solved using the third-order Taylor approximation method. Findings The authors found that EPU shock is negligible and expansionary. By contrast, COVID-19 shocks have strong contractionary effects on the economy. The combined shocks capturing the COVID-19-induced EPU shock were ultimately recessionary after an initial expansionary effect. The implication is that the COVID-19 pandemic-induced EPU adversely impacted macroeconomic outcomes in Nigeria in a non-trivial manner. Practical implications The result shows the importance of policies to cushion the effect of uncertain fiscal and monetary policy path in the aftermath of COVID-19. Originality/value The originality of the paper lies in examining the impact of COVID-19 induced EPU in the context of a developing economy using the DSGE methodology.

Assessment of the Impact of COVID-19 Pandemic on Economic Performance: DSGE and Probit Investigations

The paper proposes an innovative microeconomic analysis of the effects of COVID-19 on the economic performance by relying on two different approaches. Firstly, we consider a theoretical investigation by implementing a DSGE model where we propose a negative health shock on the supply part of the economy. The second approach is based on empirical investigation via Ordered Probit Regressions using the Saudi Labour Force Survey where we focus on time and regional effects by comparing 2019 and 2020 indicators. On one side, our findings reveal that health shock impacts household health spending. An affected household by the COVID-19 will see its resources decreasing due to the indirect costs of the pandemic related to the loss in productivity and labour supply. It is much more than that the COVID-19 pandemic hurts working hours and earnings. On the other side, the results show that individuals with higher degree of schooling and high skills seem to be not affected during the pandemic. Additionally, the effect of the current health crisis is more noticeable in Riyadh, Southern and Western region and is more intensive in the private sector and for non-Saudi workers. © 2022 Alofaysan et al.

Public Debt Frontier: A Python Toolkit for Analyzing Public Debt Sustainability

This study proposes a synthetic visual indicator with which to perform debt sustainability analysis using dynamic general equilibrium models. In a single diagram, we summarized the general equilibrium relationships among economic activity, government budget, and the maximum amount of sustainable public debt. Then, we measured sustainability using the distance of actual debt from the model-consistent maximum debt. This indicator can be implemented with any DSGE model;as a backing theory, we used a neoclassical model augmented with endogenous tax revenues, disaggregated public spending, different production technologies for public and private goods, non-atomistic wage setters in public labor (unions), and a fully specified maturity curve for public bonds. We provided an example of its usage using the case of Greece during the last public debt crisis. To perform the numerical analysis, we developed original software, whose advantage is allowing an audience without expertise in DSGE models to perform general equilibrium debt sustainability analyses without requiring an understanding of the technicalities of DSGE models.