DSGE models for developing economies: an application to Morocco
Mohammed Ait Lahcen ()
MPRA Paper from University Library of Munich, Germany
In this thesis we try to understand the impact of some macroeconomic features of developing economies, in particular the existence of a large informal sector, on the reaction of these economies to different shocks. In order to achieve this objective, we derive a simple New Keynesian Small Open Economy DSGE model featuring multiple sectors with monopolistic competition, nominal rigidities in prices, a fixed exchange regime and the introduction of a simple medium-sized informal sector. We estimate the model with Bayesian estimation using quarterly data from Morocco. The model does a good job in capturing the unconditional second moments of the data. It is also able to replicate well some of the historical data series. Estimation results suggest a relatively weaker role of price rigidities in the non-tradables sector. It also suggests a much more aggressive reaction of the central bank to inflationary pressures with a relatively higher weight given to fluctuations in inflation compared with fluctuations in output and the real exchange rate. The study of the Bayesian impulse-response functions confirm the shock absorbing role of the informal sector for productivity shocks and pleads towards excluding imported inflation from the inflation target. However, no evidence is found of a shock absorbing role of the informal sector in the case of interest rate or foreign demand shocks.
Keywords: DSGE; developing economies; informality; small open economy; new-keynesian (search for similar items in EconPapers)
JEL-codes: E26 E31 E32 E37 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-dge and nep-iue
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