The dynamic stochastic general equilibrium (DSGE) model has increasingly played a significant role in the formulation, as well as communication of monetary policy at numerous global central banks. The central banks utilize DSGE as a crucial tool for analyzing policies in a…
It emphasizes on the significance of the models in determining the uncertain future expectations by incorporating the current macroeconomic outlook. Primarily, the general equilibrium of the model presents the connection between the agents’ behavior and policy action (25). Similarly, the comprehensive specification of the stochastic shocks contributes to the economic fluctuations that facilitate the identification of the transmission of the shocks to the economy (23). The monetary policymakers employ the dynamic stochastic general equilibrium models in conjunction with other statistical tools to determine policies quantitatively.
The main characteristic of the DSGE models is the generality in nature. The implication of the general nature of the DSGE is evident in prices and interest rates. In effect, the price and interest rate tend to adjust to the point where the supply and demand in a given market become equal. For instance, the demand of services equals the supply of the same. Similarly, the incorporation of the random components in the model is critically significant in expounding on the cyclical patterns of the economy. The common behaviors in the economy encompass shocks that affect the patterns of financial markets and adjustments in the economic production (28). In turn, the shocks influence the efficiency of production. The dynamic stochastic general equilibrium models estimate the shocks, as well as the proportions adjustments in economic activity that emanate from certain market disturbances. For instance, the models can be crucial in assisting the economists to decipher the nature of the shocks during economic downturns. Notably, the DSGE models can offer answers to the recent economic recession by determining whether the economic downturn was due to financial or fiscal shocks.
The supply and demand blocks, as well as the rate, comprise the structure of DSGE models. The central banks employ the models to ...
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Introduction The research paper is a comprehensive study on the reasons of belief that transaction demand for money may be interest elastic. It is true that no interest is provided for holding money. In spite of the fact, people hold money. This is for the three main reasons: transaction demand, precautionary demand and speculative demand.
Consequently the study of exchange rates has emerged as a crucial field of economic research since the last few years. This particular field of research has received a tremendous boost, especially in the era of the Bretton Woods in which the foreign rates of exchange became extremely volatile since the inception of the floating rates of exchange since 1973.
Seemingly, global imbalances will continue for some time. Dealing with this issue is difficult to achieve as most of the economies are run by external focus on international consistency.A call for cooperation and coordination is of great need. The international systems of finance have identified faults in an attempt to deal with imbalances.
Besides, macro-economic fundamentals are introduced in analyzing and internalizing the effects of fire sales, which satisfies the international marginal calls. Similarly, bankruptcy regulations for capital restructuring provide reasonable solution to the problem in the short-run.
We retrieve data to check the trend of interest rates over the years to determine whether the statement is true. The following chart summarizes the rates over the past 40 years.
The chart shows us the trend in interest rates over the past 40 years, the past 10 years according to the chart shows a period of low and prolonged low interest rates.
The area of concern in this research paper is to evaluate the transaction demand for money. The transaction demand for money is the money held for purchasing everyday goods from the market. Transaction demand for money for the
f each of the developed countries has formulated and implemented the monetary policies that has affected and influenced the capital inflow and outflow of the capital across the countries all over the world.
The role of the floating exchange rate in controlling the inflow and
9 Pages(2250 words)Essay
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