Monetary policy interest rate rule in a CGE model

Ragchaasuren Galindev and Bernard Decaluwé

No 333464, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: This paper develops a CGE model with an explicit monetary policy rule which replaces typical exogenous numeraire so that the model can have endogenous absolute price. A model with exogenous numeraire can be derived as a special case of the current model through a flexible parameterization. It shows that in the presence of nominal rigidities, simulation results for the same shock can be different depending on the choice of exogenous numeraire. Moreover, the current model also gives different results for the same shock by creating inflation. The paper highlights the importance of choosing numeraire or considering the interest rate rule instead of fixed numeraire in the presence of nominal rigidities.

Keywords: Public; Economics (search for similar items in EconPapers)
Pages: 21
Date: 2022
New Economics Papers: this item is included in nep-cmp and nep-mon
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