Implications of state-dependent pricing for DSGE model-based policy analysis in Indonesia

Denny Lie

Economic Analysis and Policy, 2021, vol. 71, issue C, 532-552

Abstract: This paper builds a small open economy dynamic stochastic general equilibrium (DSGE) model for Indonesia with state-dependent pricing (SDP) and studies its implications for policy analysis. Variations in the extensive margin of price adjustment under SDP are shown to non-trivially affect the model-generated variance decompositions and impulse responses to various shocks. DSGE model-based policy analyses conducted without this extensive margin feature might therefore lead to inaccurate policy prescriptions. In particular, the SDP model would call for a greater degree of monetary easing in response to the COVID-19 pandemic, than that prescribed by the standard time-dependent pricing (TDP) model.

Keywords: State-dependent pricing; Monetary policy; DSGE model for Indonesia; COVID-19 pandemic (search for similar items in EconPapers)
JEL-codes: E12 E32 E58 E61 F41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0313592621000801
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Implications of state-dependent pricing for DSGE model-based policy analysis in Indonesia (2021)
Working Paper: Implications of state-dependent pricing for DSGE model-based policy analysis in Indonesia (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:71:y:2021:i:c:p:532-552

DOI: 10.1016/j.eap.2021.06.003

Access Statistics for this article

Economic Analysis and Policy is currently edited by Clevo Wilson

More articles in Economic Analysis and Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().