A Medium-Scale DSGE Model for the Integrated Policy Framework

IMF Working Papers, January 28, 2022

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Estimated medium-scale dynamic stochastic general equilibrium (DSGE) model of the world economy.
Features:
- A range of nominal and real rigidities.
- Extensive macrofinancial linkages with endogenous risk.
- Diverse spillover transmission channels.
Policy instruments incorporated jointly: monetary policy, foreign exchange intervention, fiscal policy, macroprudential policy, and capital flow management.

Joint analysis of the optimal conduct of:
- Monetary policy
- Foreign exchange intervention
- Fiscal policy
- Macroprudential policy
- Capital flow management
Primary policy objectives: inflation stabilization and output stabilization.
Consideration of policy responses to both domestic and global financial cycle upturns and downturns.

It is optimal to adjust all policies in response to domestic and global financial cycle upturns and downturns when feasible.
Foreign exchange intervention and capital flow management can be optimal under some conditions.
The degree to which each policy is adjusted varies widely depending on the structural characteristics of the economy.

Framework applied empirically to four small open advanced and emerging market economies.

Subjects: Balance of payments, Capital flow management, Consumption, Financial institutions, Foreign exchange, Foreign exchange intervention, Inflation, Mortgages, National accounts, Prices.
Keywords include: Africa, Capital flow management, Consumption, Dynamic Stochastic General Equilibrium Model, Fiscal Policy, Foreign exchange intervention, Global, Inflation, Macroprudential Policy, Monetary Policy, Mortgages, policy rule parameter, policy rule response coefficient, Policy transmission mechanisms, price inflation, scenario assumption, Small Open Economy.