ON BALANCED INFLATION

The article presents a dynamic stochastic general equilibrium model (DSGE-model) for the Russian economy. The model describes the behavior of the following macroeconomic agents: households, real sector, banking sector, Central Bank, as well as the interactions between them and the world. Household modeling uses the external habit formation approach to account for the inertia of preferences. To model the real sector, we abandoned the most common approach which assumes that the decision on investments is made by the households as the owners of production factors. Instead, we took the firm-specific capital approach which assumes that the decision on investment is made by the firms themselves. The study also considers that in Russia, fixed assets are mostly invested from the firms' own funds. To account for the investment inertia in the fixed asset in a real sector model, the expenditures are transferred to the commissioning of new facilities, the Calvo model is applied to describe the price setting under the monopolistic competition. A banking sector which defines the loan and debt interest rates to the key Central Bank interest rate is chosen to be a link between the households and firms in the model. The Taylor equation is used to describe the monetary policy of the Bank of Russia under the inflation targeting, while an inertia factor is included into the equation with the uncovered interest parity for the budget rule which regulates the purchases (or sales) of the currency by the National Welfare Fund. The final linearized model is a system of 23 difference equations with rational expectations. Based on the proposed model, calculations were made and key macroeconomic indicators were forecasted for 2020–2021 on a quarterly basis for the Russian economy. The calculations account for the relevant recessionary factors: oil price fall, oil production cut in OPEC+ deals, quarantine measures aimed to prevent the spread of the corona virus infection, anti-recessionary measures of the RF Government. The findings show that the economic downturn in 2020 can be from 5 to 7% under COVID-19 pandemic. Growth in 2021 is estimated to be within 3–5%. The developed model can be used for scenario projecting for the Russian economy, upgrading the monetary policy of the Bank of Russia, and for developing applied quarterly projection models (QPM). The model could be further modified by including more elements: decomposing the household sector into the Ricardian and non-Ricardian ones, identifying the resources industries and industries in the real sector which manufacture the invested goods, including the key taxes and budget expenses into the model. One more promising area is to analyze the equilibrium of the interest rates when large firms could accumulate their own financial resources. This prerequisite decreases the demand for the bank loans from the real sector and, thus, leads to lower, including the negative, interest rates. The proposed approach enhances the quality of a DSGE model as a predictive tool for making the political and managerial decisions.

We introduce credit frictions motivated by moral hazard in a general equilibrium model of international trade with two dimensions of heterogeneity and endogenous investments. Firms’ competitiveness consists of capabilities to conduct process and quality innovations at low costs, whereas investment outlays have to be financed by external capital. We show that the scope for vertical product differentiation in a sector determines how credit tightening affects investment and price setting. Consistent with recent empirical evidence, our model rationalizes positive as well as negative correlations of firm-level FOB prices with financial frictions and variable trade costs. Faced with an increase in the borrowing rate, producers reduce both types of innovation resulting in opposing effects on marginal production costs and prices. In general equilibrium, financial frictions intensify quality-based (cost-based) sorting of firms if the scope for vertical product differentiation is high (low). Consequently, credit tightening leads to firm exit, increased innovation activity among existing suppliers, and welfare losses that are larger in sectors with low investment intensity.

On the Foreign Exchange Risk Premium in Stick-Price General Equilibrium Models

Price setting under uncertainty about inflation

On a general equilibrium model of the incidence of the corporation tax under uncertainty

We construct experimental economies, populated with human subjects, with a structure based on a nonlinear version of the New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. We analyze the behavior of firms' pricing decisions in four different experimental economies. We consider how well the experimental data conform to a number of accepted empirical stylized facts. Pricing patterns mostly conform to these patterns. Most price changes are positive, and inflation is strongly correlated with average magnitude, but not the frequency, of price changes. Prices are affected negatively by the productivity shock and positively by the output gap. Lagged real interest rate has a negative effect on prices, unless human subjects choose the interest rate, or firms sell perfect substitutes in the output market. There is inertia in price setting, firms integrate wage increases into their prices, and there is evidence of adaptive behavior in price-setting in our laboratory economy. The hazard function for price changes, however, is upward-sloping, in contrast to most empirical studies.

In search for general equilibrium in multi-commodity markets, price-oriented schemes are normally used. That is, a set of prices (one price for each commodity) is updated until supply meets demand for each commodity. In some cases such an approach is very inefficient and a resource-oriented scheme can be highly competitive. In a resource-oriented scheme the allocations are updated until the market equilibrium is found. It is well known that in a two-commodity market resource-oriented schemes are possible. We show that resource-oriented algorithms can be used for the general multi-commodity case as well, and present and analyze a specific algorithm. The algorithm has been implemented and some performance properties, for a specific example, are presented.

We consider alternative combinations of nominal price and wage frictions in dynamic stochastic general equilibrium models fit to U.S. data. Since inflation was unanchored in the 1970s, we divide the data into early, middle, and late samples (1955–68, 1969–79, and 1983–2007, respectively). We find that prices are reoptimized more frequently and exhibit greater indexation to past inflation in the middle sample than in the other two samples, while wages are reoptimized with increasing frequency and display less evidence of indexation over time. Differences in price and wage setting across samples have important implications for the economy's response to key shocks.

Assessing the economic impact of public investment in Malaysia: a case study on MyRapid Transit project using a dynamic computable general equilibrium model

Prediction of chemical speciation in stabilized/solidified wastes using a general chemical equilibrium model Part I. Chemical representation of cementitious binders

The structure and working of MSG-5, an applied general equilibrium model of the Norwegian economy

American Journal of Agricultural EconomicsVolume 68, Issue 5 p. 1219-1221 Invited Papers Session Optimal Control of General Equilibrium Models: Discussion Richard E. Howitt, Richard E. Howitt professor Department of Agricultural Economics, University of California, DavisSearch for more papers by this author Richard E. Howitt, Richard E. Howitt professor Department of Agricultural Economics, University of California, DavisSearch for more papers by this author First published: 01 December 1986 https://doi.org/10.2307/1241879AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat No abstract is available for this article. Volume68, Issue5December 1986Pages 1219-1221 RelatedInformation

This paper shows that the existence of general equilibrium in a two-period economy with financial markets and progressive anonymous tax system is not at all problematic, provided securities are purely financial. We explore the concepts of weakly and strongly arbitrage-free security price for return and tax system, and prove arbitrage-free asset pricing theorems without short-sale restrictions. A general equilibrium is a set of current and future prices (contingent on uncertain events) and a set of individual plans such that all markets are cleared. The existence of such an equilibrium is proved under the following conditions: continuous, weakly convex, strictly monotone, complete preferences and strictly positive endowments.

The concept of location surplus was proposed in CALUTAS Model to explain intra-urban location changes. In this paper, it is re-defined and examined theoretically, and then, incorporated into Walrasian general equilibrium model. Such conceptual and theoretical extension gives a new general equilibrium model which can deal with location equilibrium and multi-markets equilibrium simultaneously. Furthermore, relation between such an equilibrium model and mathematical programming is examined in this paper.

The recent theoretical research in economics has paid much attention to imperfect competition and increasing returns to scale, uncovering new and useful findings about the market behavior of firms and their implications for economic welfare. More often than not, the analysis of these phenomena has been carried out within the framework of partial equilibrium models. This is a notable, and perhaps inevitable, turnabout from the dominance of general equilibrium analysis in the 1950s to 1970s. The traditional general equilibrium models a la Arrow and Debreu (1954) and McKenzie (1959) are appropriate for the proof of the existence of general equilibrium, but their generality restricts the comparative-static (or dynamic) analysis of practical economic problems even under the assumption of perfect competition. The same comment applies, a fortiori, to Negishi’s (1961) ingenious extension of the Arrow–Debreu model to the case of monopolistic competition. Although partial equilibrium models are useful for the analysis of a single industry (or a set of closely related industries), they are inadequate in addressing its relationships with the rest of the economy, both through their negligence of income effects and because of their loose recognition of the inter-industry flow of resources. I need to develop tractable general equilibrium models incorporating imperfect competition and increasing returns at the expense of generality. The present chapter takes a small step forward in this direction.