I. Lukianenko, Doctor of Science (Economics), Professor, Roman Semko, PhD in Economics, Associate Professor National University of Kyiv-Mohyla Academy, Kyiv, Ukraine THE DETAILS OF CONSTRUCTION AND APPLICATION OF EUROPEAN COMMISSION MACROMODEL QUEST III WITH EXTENDED FISCAL BLOCK

In this paper we provide detailed derivation of dynamic stochastic general equilibrium model QUEST III that was developed under European Commission project. The principal feature of the model is the presence of both monetary and extended fiscal blocks. In particular, Central Bank sets interest rate using monetary policy rule, while fiscal sector is represented by taxes and transfers. It allows analyzing the effect of complex shocks on the key macroeconomic variables. Our results show that parallel application of monetary and fiscal instruments is an effective way to combat stagflation, i.e. drastic decrease in production and acceleration of inflation. Due to the presence of extended fiscal block, the model can fit Ukrainian economic and policy structure quick good. The next steps of the research may be calibration and estimation of QUEST III prototype on the Ukrainian data with potentially some modification and inclusion of banking and other sectors that play critical role in the local conditions. Monetary policy instruments should be extended with the level of Central Bank reserves which have large influence on macro stability. In addition, dollarization is an important peculiarity that should be addressed in the future versions of the model.

Keywords: dynamic stochastic general equilibrium model, fiscal and monetary policy, complex shocks, supply shock, stagflation.

DOI: http://dx.doi.org/10.17721/1728-2667.2015/177-12/3

References
  1. Semko, R. B. (2011). Bayesian Estimation Of Small-Scale Dsge Model Of The Ukrainian Economy. Scientific Notes of NaUKMA. Economic Sciences
  2. Lukyanenko, I. G., & Semko, R. B. (2012). Forecasting The Consequences Of Economic Policy By Means Of General Equilibrium Model. Actual Problems of Economics/Aktual’ni Problemi Ekonomlki, (8).
  3. Lukianenko, I., & Semko, R. (2012). Monetary policy and fluctuations on Ukraine’s stock market. Economy and Forecasting, (4), 110-122.
  4. Chernyak, O., & Bazhenova, O. (2010). Stability Price Index: Pecularity Of Modeling In Ukraine. A Argument A Argument,
  5. Bazhenova, O., 2015. Modeling of World’s Systemically Important Economies Impact on the Dynamics of Macroeconomic Indicators in Ukraine. Bulletin of Taras Shevchenko National University of Kyiv. Economics, 2, pp. 36-42. DOI: http://dx.doi.org/10.17721/1728-2667.2015/167-2/6
  6. Stavytskyy, A.V., Homyak, V.R., 2010. The Effectiveness of Monetary Transmission Mechanism In Ukraine. Finances of Ukraine, 7, pp. 50-58.
  7. Petryk, O., & Nikolaychuk, S. (2006). Structural Model of the Transmission Mechanism of the Monetary Policy in Ukraine. National Bank of Ukraine.
  8. Lukianenko, I.G., 2012. Modelling effects of fiscal policy on the Ukrainian economy. Scientific Journal Business Infor”, 4, pp. 197-201.
  9. Brumnik, R., Klebanova, T., Guryanova, L., Kavun, S., & Trydid, O. (2014). Simulation of Territorial Development Based on Fiscal Policy Tools. Mathematical Problems in Engineering, 2014. DOI: http://dx.doi.org/10.1155/2014/843976
  10. Nikolaychuk, S., Sholomytskyi,Y., 2015. Using Macroeconomic Models for Monetary Policy in Ukraine. Visnyk of the National Bank of Ukraine, 233, pp. 54-64.
  11. Ratto, M., Roeger, W., & in’t Veld, J. (2009). QUEST III: An estimated open-economy DSGE model of the euro area with fiscal and monetary policy, Economic Modelling, 26(1), 222-233. doi:  http://dx.doi.org/10.1016/j.econmod.2008.06.014
  12. Labus, M., 2014. QUEST Serbia: DSGE Model with Practical Guide. Belox. Beograd. Available at: http://www.belox.rs/uploads/sr/publikacije/studije-i-izve-taji/quest_serbia-dsge-odel/QUEST_Serbia_Paper_for_print2_1_1_1_1.pdf.
  13. Danthine, J. P., & Donaldson, J. B. (1986). Inflation and asset prices in an exchange economy. Econometrica: Journal of the Econometric Society, 585-605. DOI: http://dx.doi.org/10.2307/1911309
  14. Adjemian, S., Bastani, H., Juillard, M., Mihoubi, F., Perendia, G., Ratto, M., & Villemot, S. (2011). Dynare: Reference manual, version 4. Dynare Working Papers 1, CEPREMAP.

Download

  • pdf 177_3
    File size: 461 kB Downloads: 106