The General-Equilibrium Model of the New Synthesis: What Hypotheses Should We Choose?
Moyen, Stéphane
The General-Equilibrium Model of the New Synthesis: What Hypotheses Should We Choose? - 2008.
1
This article has a twofold purpose. First, it describes the general-equilibrium model of the “new synthesis,” which has rapidly become a true benchmark for macroeconomic analysis in areas such as economic-policy simulation and inflation forecasting. Second, it seeks to identify the contribution of nominal and real rigidities to the good performance of this type of model, using the marginal-likelihood criterion and the inspection of moments of order two. The main results are as follows: (1) the combination of rigid and indexed prices and rigid wages is essential to the quality of the model’s fit to the data; (2) the only hypotheses needed are habit formation for consumption and adjustment costs for investment, the second hypothesis being crucial for reproducing real and nominal dynamics; (3) by introducing strategic complementarity, we can obtain a degree of nominal rigidity closer to that observed on macroeconomic data.
The General-Equilibrium Model of the New Synthesis: What Hypotheses Should We Choose? - 2008.
1
This article has a twofold purpose. First, it describes the general-equilibrium model of the “new synthesis,” which has rapidly become a true benchmark for macroeconomic analysis in areas such as economic-policy simulation and inflation forecasting. Second, it seeks to identify the contribution of nominal and real rigidities to the good performance of this type of model, using the marginal-likelihood criterion and the inspection of moments of order two. The main results are as follows: (1) the combination of rigid and indexed prices and rigid wages is essential to the quality of the model’s fit to the data; (2) the only hypotheses needed are habit formation for consumption and adjustment costs for investment, the second hypothesis being crucial for reproducing real and nominal dynamics; (3) by introducing strategic complementarity, we can obtain a degree of nominal rigidity closer to that observed on macroeconomic data.
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