An Estimated Dynamic Stochastic General Equilibrium Model of the Jordanian Economy

Author/Editor: Tigran Poghosyan ; Samya Beidas-Strom
Publication Date: February 01, 2011
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Summary: This paper presents and estimates a small open economy dynamic stochastic general-equilibrium model (DSGE) for the Jordanian economy. The model features nominal and real rigidities, imperfect competition and habit formation in the consumer’s utility function. Oil imports are explicitly modeled in the consumption basket and domestic production. Bayesian estimation methods are employed on quarterly Jordanian data. The model’s properties are described by impulse response analysis of identified structural shocks pertinent to the economy. These properties assess the effectiveness of the pegged exchange rate regime in minimizing inflation and output trade-offs. The estimates of the structural parameters fall within plausible ranges, and simulation results suggest that while the peg amplifies output, consumption and (price and wage) inflation volatility, it offers a relatively low risk premium.
Series: Working Paper No. 11/28
Subject(s): Economic models | Exchange rate appreciation | Exchange rate depreciation | External shocks | Income | Jordan | Oil prices | Price adjustments | Wage policy

Author's Keyword(s): DSGE | Bayesian Estimation | Jordan | Monetary and Exchange Rate Policy
Publication Date: February 01, 2011
ISBN/ISSN: 9781455216758/1018-5941 Format: Paper
Stock No: WPIEA2011028 Pages: 51
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