FiMod — A DSGE model for fiscal policy simulations

Nikolai Stähler and Carlos Thomas

Economic Modelling, 2012, vol. 29, issue 2, 239-261

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: General equilibrium; Fiscal policy simulations; Labor market search (search for similar items in EconPapers)
JEL-codes: E24 E32 E62 H20 H50 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (103)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S026499931100229X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: FiMod - a DSGE model for fiscal policy simulations (2011)
Working Paper: FiMod - a DSGE model for fiscal policy simulations (2011)
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:ecmode:v:29:y:2012:i:2:p:239-261

DOI: 10.1016/j.econmod.2011.10.001

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

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