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FiMod - a DSGE model for fiscal policy simulations

Nikolai Stähler and Carlos Thomas ()

No 2011,06, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: This paper develops a medium-scale dynamic, stochastic, general equilibrium (DSGE) model for fiscal policy simulations. Relative to existingmodels of this type, our model incorporates a two-country monetary union structure, which makes it well suited to simulate fiscal measures by relatively large countries in a currency area. We also 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. Finally, 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: 2011
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-dge, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Journal Article: FiMod — A DSGE model for fiscal policy simulations (2012) Downloads
Working Paper: FiMod - a DSGE model for fiscal policy simulations (2011) Downloads
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