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The primary purpose of this paper is to investigate the sources of the business cycle fluctuations in Vietnam. To this end, the author develops a small open economy New Keynesian dynamic stochastic general equilibrium (SOE-NK-DSGE) model. Accordingly, this model includes various features, such as habit consumption, staggered price, price indexation, incomplete exchange-rate pass-through (ERPT), the failures of the law of one price (LOOP) and the uncovered interest rate parity. It is then estimated by using the Bayesian technique and Vietnamese data 1999Q1–2017Q1. Based on the estimated model, this paper analyzes the sources of the business cycle fluctuations in this emerging economy. Indeed, this research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.

A SOE-NK-DSGE model—Bayesian estimation.

This paper analyzes the sources of the business cycle fluctuations in Vietnam.

This research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.

This paper seeks to explore the sensitivity of these parameters and their impact on fiscal policy outcomes. We use the existing literature to establish possible ranges for each parameter, and we examine how changes within these ranges can alter the outcomes of fiscal policy. In this way, we aim to highlight the importance of these parameters in the formulation and evaluation of fiscal policy.

The role of fiscal policy, its effects and multipliers continues to be a subject of intense debate in macroeconomics. Despite adopting a New Keynesian approach within a macroeconomic model, the reactions of macroeconomic variables to fiscal shocks can vary across different contexts and theoretical frameworks. This paper aims to investigate these diverse reactions by conducting a sensitivity analysis of parameters. Specifically, the study examines how key variables respond to fiscal shocks under different parameter settings. By analyzing the behavioral dynamics of these variables, this research contributes to the ongoing discussion on fiscal policy. The findings offer valuable insights to enrich the understanding of the complex relationship between fiscal shocks and macroeconomic outcomes, thus facilitating informed policy debates.

This paper aims to investigate key elements of New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. The focus is on the calibration of parameters and their impact on macroeconomic variables, such as output and inflation. The study also examines how different parameter settings affect the response of monetary policy to fiscal measures. In conclusion, this study has relied on theoretical exploration and a comprehensive review of existing literature. The parameters and their relationships have been analyzed within a robust theoretical framework, offering valuable insights for further research on how these factors influence model forecasts and inform policy recommendations derived from New Keynesian DSGE models. Moving forward, it is recommended that future work includes empirical analyses to test the reliability and effectiveness of parameter calibrations in real-world conditions. This will contribute to enhancing the accuracy and relevance of DSGE models for economic policy decision-making.

This study is motivated by the aim to provide a deeper understanding of the roles macroeconomic model parameters play concerning responses to expansionary fiscal policies and the subsequent reactions of monetary authorities. Comprehensive reviews that encompass this breadth of relationships within a single text are rare in the literature, making this work a valuable contribution to stimulating discussions on macroeconomic policies.

F. A. Hayek’s macroeconomic theory and policy ideas have gained renewed attention since the cheap-money boom until 2007, and subsequent bust, followed the basic Hayekian narrative. Only to a very limited extent, however, do we find Hayek’s ideas on the agenda of mainstream macroeconomic researchers since Robert Lucas’s research program gave way to “Neoclassical” and “New Keynesian” DSGE models. We find examples of deeper interest on the periphery of the mainstream. Hayek’s influence on today’s macroeconomic policy discussions remains similarly limited, although he has become an icon to some opponents of loose monetary policy.

Empirical work in macroeconomics almost universally relies on the hypothesis of rational expectations (RE).

This chapter departs from the literature by considering a variety of alternative expectations formation models. We study the econometric properties of a popular New Keynesian monetary DSGE model under different expectational assumptions: the benchmark case of RE, RE extended to allow for “news” about future shocks, near-RE and learning, and observed subjective expectations from surveys.

The results show that the econometric evaluation of the model is extremely sensitive to how expectations are modeled. The posterior distributions for the structural parameters significantly shift when the assumption of RE is modified. Estimates of the structural disturbances under different expectation processes are often dissimilar.

The modeling of expectations has important effects on the ability of the model to fit macroeconomic time series. The model achieves its worse fit under RE. The introduction of news improves fit. The best-fitting specifications, however, are those that assume learning. Expectations also have large effects on forecasting. Survey expectations, news, and learning all work to improve the model's one-step-ahead forecasting accuracy. RE, however, dominate over longer horizons, such as one-year ahead or beyond.

This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period FY2004/2005:Q1-FY2015/2016:Q4 to assess monetary and fiscal policy interactions and their impact on economic stabilization. Outcomes of monetary and fiscal authority commitment to policy instruments, interest rate, government spending and taxes, are evaluated using Taylor-type and optimal simple rules.

The study extends the stylized micro-founded small open economy New Keynesian DSGE model, proposed by Lubik and Schorfheide (2007), by explicitly introducing fiscal policy behavior into the model (Fragetta and Kirsanova, 2010 and Çebi, 2011). The model is calibrated using quarterly data for Egypt on key macroeconomic variables during FY2004/2005:Q1-FY2015/2016:Q4; and Bayesian methods are used in estimation.

The results show that monetary and fiscal policy instruments in Egypt contribute to economic stability through their effects on inflation, output and debt stock. The monetary policy Taylor rule estimates reveal that the Central Bank of Egypt (CBE) attaches significant importance to anti-inflationary policy and (to a lesser extent) to output targeting but responds weakly to nominal exchange rate variations. CBE decisions are significantly influenced by interest rate smoothing. Egyptian fiscal policy has an important role in output and government debt stabilization. Additionally, the fiscal authority chooses pro-cyclical government spending and counter-cyclical tax policies for output stabilization. Again, past values of the fiscal instruments are influential in the evolution of the future fiscal policy-making process.

A few studies have examined the interaction between monetary and fiscal policy in Egypt within a unified framework. The presented paper integrates the monetary and fiscal policy analysis within a unified dynamic general equilibrium open economy rational expectations framework. Without such a framework, it would not be easy to jointly analyze monetary and fiscal transmission mechanisms for output, inflation and debt. Also, it would be neither possible to contrast the outcome of monetary and fiscal authorities commitment to a simple Taylor instrument rule vis-à-vis optimal policy outcomes nor to assess the behavior of monetary and fiscal agents in macroeconomic stability in context of an active/passive policy decisions framework.

Sufficiently persistent rise in nominal interest increases inflation rate in short-run. This short-run comovement of nominal interest rate and inflation rate is known as Neo-Fisherianism. This chapter proposes a policy based on Neo-Fisherianism to escape Zero Lower Bound (ZLB) using a textbook Forward Looking New Keynesian Model. I have shown that proposed policy with properly chosen inflation target and persistence can stimulate economy and escape ZLB by raising nominal interest rate. I have also shown that the proposed policy is robust to varying degrees of price stickiness.

We design experimental economies based on a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. We apply shocks to tastes, productivity, and interest rate policy, and measure the persistence of these shocks. We find that, in a setting where goods are perfect substitutes, there is little persistence of output shocks compared to treatments with monopolistic competition, which perform similarly irrespective of whether or not menu costs are present. Discretionary central banking is associated with greater persistence than automated instrumental rules.

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.

This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.

In this article, we survey experiments that are directly related to monetary policy and central banking. We argue that experiments can also be used as a tool for central bankers for bench testing policy measures or rules. We distinguish experiments that analyze the reasons for non-neutrality of monetary policy, experiments in which subjects play the role of central bankers, experiments that analyze the role of central bank communication and its implications, experiments on the optimal implementation of monetary policy, and experiments relevant for monetary policy responses to financial crises. Finally, we mention open issues and raise new avenues for future research.