A Small Quarterly Multi-Country Projection Model with Financial-Real Linkages and Oil Prices, Issues 2008-2280
Ondra Kamenik, Ioan Carabenciov, International Monetary Fund. Research Dept, Igor Ermolaev, Charles Freedman, Dmitry Korshunov, Jared Laxton, Douglas Laxton, Michel Juillard
International Monetary Fund, Dec 1, 2008 - Business & Economics - 74 pages
This is the third of a series of papers that are being written as part of a larger project to estimate a small quarterly Global Projection Model (GPM). The GPM project is designed to improve the toolkit for studying both own-country and cross-country linkages. In this paper, we estimate a small quarterly projection model of the US, Euro Area, and Japanese economies that incorporates oil prices and allows us to trace out the effects of shocks to oil prices. The model is estimated with Bayesian techniques. We show how the model can be used to construct efficient baseline forecasts that incorporate judgment imposed on the near-term outlook.
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Ill Extending the Model to Include FinancialReal Linkages
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aggregate demand area and Japan available at www.imf.org bank lending tightening Bayesian estimation behavior beta beta beta BLTUS business cycle central bank coefficient conditional forecast conﬁdence countries cross correlations currency deﬁnes Demand shock developments disturbance term dollar DSGE models equilibrium real interest euro area euro area economy exchange rate gap expected ﬁgures ﬁnancial institutions ﬁnancial markets ﬁnancial variables ﬁnancial-real linkages ﬁrst gamma gamma gamma growth rate IMF Working Paper impulse response functions increase Inf Inf Inf invg invg invg Japan judgmental input lagged value Laxton lending tightening variable level of potential loans macro model multi-country NAIRU nominal interest rate output gap equation posterior potential output growth price of oil priors quarterly projection model rate of inﬂation real exchange rate real interest rate real oil prices real price reﬂect shock to potential small quarterly projection speciﬁcation standard deviation supply shock three economies unconditional unemployment rate United Year-on-Year