Expectations, Inter-Sectorial Relationships and the Business Cycle

Francisco Sáez (), Fernando Alvarez-Parra (), Jesús Morales () and Giovanni Guedez ()
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Francisco Sáez: Central Bank of Venezuela
Jesús Morales: Central Bank of Venezuela
Giovanni Guedez: Central Bank of Venezuela

Ensayos Económicos, 2011, vol. 1, issue 63, 97-147

Abstract: This paper presents a stochastic dynamic general equilibrium model calibrated for Venezuela that incorporates inter-sectorial relationships. With this model it is possible to assess the impact on the aggregate economic activity generated by productivity shocks or demand shocks to a specific sector and/or how changes at the aggregate level could affect the sectorial activity. The model is used to evaluate the aggregate and sectorial responses to shocks of different nature, under diverse assumptions about the inter-sectorial relationships and expectations formation. The results suggest that the omission of inter-sectorial relations and inadequate treatment of expectations can produce unrealistic results or dynamics. In quantitative terms, the omission of rational expectations seems to be less critical. However, this could change in an environment with more frictions.

Keywords: dynamic stochastic general equilibrium models; inter-sectorial relationships; open economy; Venezuela (search for similar items in EconPapers)
JEL-codes: B23 C11 C15 C50 D50 D52 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:bcr:ensayo:v:1:y:2011:i:63:p:97-147

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