Workshop on Dynamic Stochastic General Equilibrium (DSGE) Modeling IMF Research Bulletin

• Author: Douglas Laxton
• Pages: 8

Page 8

The workshop was held in Washington during the week of April 26-30. The workshop consisted of a one-day miniconference on the use of DSGE models for policy analysis followed by four days of practical training, where participants were exposed to Bayesian estimation methods, techniques for doing formal welfare analysis, and a summary of the types of models that have been developed in the Research Department to support policy analysis at the IMF. The 104 conference participants represented 37 institutions from 22 countries. Fifteen participants were from academic institutions, 53 were from central banks (36 from industrial countries and 17 from emerging market economies), and the remainder were from the IMF and the World Bank.

Examples of DSGE models were presented at the first day of the workshop. Lawrence Christiano developed a DSGE model to study the Great Depression in the United States and concluded that a more accommodative monetary policy would have greatly reduced the severity of the Great Depression. Frank Smets provided an example of how Bayesian methods could be used to estimate DSGE models. Enrique Mendoza developed a DSGE model to understand the phenomena of "sudden stops" in capital flows to emerging market economies. He concluded that financial development that could alleviate collateral and working capital constraints could substantially improve macroeconomic performance. Michael Woodford presented a lecture on monetary policy under flexible exchange rate regimes and emphasized the importance of time consistency in designing monetary policy rules. Paolo Pesenti summarized a sample of the work on the Global Economy Model that was being done at the IMF. The presentations were followed by a round-table discussion where the panelists-Jarle Bergo, Ralph Bryant, Jordi Gali, Richard Harrison, Dale Henderson, Tiff Macklem, David Reifschneider, Tom Sargent, and Klaus Schmidt-Hebbel-commented on the papers and suggested extensions for the future. Generally, the panelists were encouraged by recent developments and the strong links that were being established between academic and policymaking institutions. However, they noted that more work would be needed to incorporate a more interesting role for fiscal...