FiMod - a DSGE model for fiscal policy simulations

Nikolai Stähler () and Carlos Thomas
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Nikolai Stähler: Deutsche Bundesbank

No 1110, Working Papers from Banco de España

Abstract: This paper develops a medium-scale dynamic, stochastic, general equilibrium (DSGE) model for fiscal policy simulations. Relative to existing models of this type, our model incorporates two important features. First, we consider a two-country monetary union structure, which makes it well suited to simulate fiscal measures by relatively large countries in a currency area. Second, we provide a notable degree of disaggregation on the government expenditures side, by explicitly distinguishing between (productivity-enhancing) public investment, public purchases and the public sector wage bill. In addition, we consider a labor market characterized by search and matching frictions, which allows to analyze the response of equilibrium unemployment to fiscal measures. In order to illustrate some of its applications, and motivated by recent policy debate in the Euro Area, we calibrate the model to Spain and the rest of the area and simulate a number of fiscal consolidation scenarios. We find that, in terms of output and employment losses, fiscal consolidation is the least damaging when achieved by reducing the public sector wage bill, whereas it is most damaging when carried out by cutting public investment.

Keywords: DSGE model; fiscal policy; two-country monetary union; disaggregation of fiscal expenditures; labor market frictions (search for similar items in EconPapers)
JEL-codes: E62 H30 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2011-05
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-dge, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... /11/Fich/dt1110e.pdf First version, May 2011 (application/pdf)

Related works:
Journal Article: FiMod — A DSGE model for fiscal policy simulations (2012)
Working Paper: FiMod - a DSGE model for fiscal policy simulations (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1110

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