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  Spurious Welfare Rankings in Log-Linearized Monetary DSGE Models
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 Ophav:
Thorvaldsson, Sverrir Kristjan1, Forfatter
Jensen, Henrik2, Vejleder
Tilknytninger:
1Det Samfundsvidenskabelige Fakultet, Københavns Universitet, København, Danmark, diskurs:7001              
2Økonomisk Institut, Det Samfundsvidenskabelige Fakultet, Københavns Universitet, København, Danmark, diskurs:7014              
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Indhold

Ukontrollerede emneord: Welfare rankings, DSGE model, Collocation method
 Abstract: The main purpose of this paper is to examine whether log-linearized New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) models exhibit spurious welfare rankings of alternative simple monetary policy rules. Due to the intractable nature of DSGE models, I compare rankings where period welfare is quadratically approximated given log-linear responses with rankings where period welfare is exact and responses are log-linear and subject to response bounds. The main results are: 1) the Zero-Lower-Bound on the nominal interest rates and the relative price distortion do not appear to influence the rankings in nontrivial ways; 2) policies with aggressive output components under the non-linear model tend to, under some calibrations, entail larger preference for lax inflationary components whereas the log-linear model always entails preference for aggressive inflationary policies; and 3) fullset rankings containing simple policy rules under the log-linear model with lax inflationary components tend to deviate, often aggressively, from the non-linear model. I draw the conclusion that the convenience of have linear responses and quadratic utility may not outbenefit the inconveniences of incorporating the non-lineariaties inherent in the original abstract model into a non-linear numerical approximation.
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master_thesis.pdf (Hovedtekst)
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Offentlig
Mime-type / størrelse:
application/pdf / 748KB
Copyright dato:
2013-10-10
Copyright information:
De fulde rettigheder til dette materiale tilhører forfatteren.
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Basal

Bogmærk denne post: https://diskurs.kb.dk/item/diskurs:52923:1
 Type: Speciale
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Detaljer

Sprog: English - eng
 Datoer: 2013-07-31
 Sider: -
 Publiceringsinfo: København : Københavns Universitet
 Indholdsfortegnelse: 1 Introduction 6
2 Model 9
2.1 Household Consumption Decision.......9
2.2 Firm Price-Setting Decision........10
2.3 Aggregate Price-Level Determination....... 12
2.4 Market Clearing........... 13
2.5 Relative Price Distortion......... . 13
2.6 Simple Monetary Policy Rule........ . 14
2.7 Structural Equation Systems........14
3 Numerical Implementation 15
3.1 Non-Linear Responses.........15
3.2 Log-Linear Responses.......... 19
3.3 Welfare Measurements.........20
4 Numerical Results 22
4.1 Policy and Structural Calibrations.......22
4.2 Response Approximation Error........ 24
4.3 Value Function Graphs.........29
4.4 Welfare Rankings..........30
5 Conclusions 36
A 2nd-Order Welfare Function Approximation 38
 Note: -
 Type: Speciale
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