A Medium-Scale DSGE Model for the Integrated Policy Framework

Tobias Adrian, Vitor Gaspar and Francis Vitek
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Tobias Adrian: International Monetary Fund
Vitor Gaspar: International Monetary Fund

International Journal of Central Banking, 2024, vol. 20, issue 4, 1-123

Abstract: This paper jointly analyzes the optimal conduct of monetary policy, foreign exchange intervention, fiscal policy, macroprudential policy, and capital flow management. This policy analysis is based on an estimated medium-scale dynamic stochastic general equilibrium (DSGE) model of the world economy, featuring a range of nominal and real rigidities, extensive macrofinancial linkages with endogenous risk, and diverse spillover transmission channels. In the pursuit of inflation and output stabilization objectives, it is optimal to adjust all policies in response to global financial cycle upturns and downturns when feasible—including foreign exchange intervention and capital flow management under some conditions—to widely varying degrees depending on the structural characteristics of the economy. The framework is applied empirically to four small open advanced and emerging market economies.

Date: 2024
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Working Paper: A Medium-Scale DSGE Model for the Integrated Policy Framework (2022)
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