Pablo Burriel

BEMOD: A DSGE Model for the Spanish Economy and the Rest of the Euro Area

In this paper we present the theoretical foundations and the simulation results obtained with a new dynamic general equilibrium model developed at the Banco de Espana for the Spanish economy and the rest of Euro area. The model is designed to help in simulating the effect of alternative shocks on the main aggregate variables. The main contributions of this work from a theoretical perspective are the modelling of a monetary union composed of two regions, the inclusion of housing as a durable good with its own sector of production and the degree and detail of the disaggregation considered for each country in the model, which replicates the Quarterly National Accounts. On the empirical side, the main contribution is the detailed calibration of the most important ratios of the Spanish and rest of the Euro area economies.

A Quality-Adjusted Labor Input Series for the United Kingdom (1975-2002)

In this paper, annual indices of labour input adjusted for the education, age and gender distributions of the UK workforce are presented for the period 1975-2002. These measures show that improvement in labour quality, as proxied by education, age and gender, has added on average 0.67 percentage points per year to the growth rate in total labour input. Changes in the education distribution more than account for the improvement in labour quality, adding 0.68 percentage points per annum. Changes in the age distribution have made a much smaller contribution, adding only 0.11 percentage points to the growth rate. The rise in female participation has had a small negative effect of 0.08 percentage points, as women have had a preference for part-time work, which tends to be paid less per hour than full-time jobs. Using this evidence, the key finding of this paper is that a large proportion of growth that is usually attributed to TFP (total factor productivity) growth can be accounted for by an improvement in the quality of labour input. This result has no implications for the measurement of UK GDP growth from 1975-2002, but it does help to identify more accurately the sources of that growth.

Uncovering the heterogeneous effects of ecb unconventional monetary policies across euro area countries

En este docuemento se evalua el efecto de las medidas no convencionales de politica monetaria adoptadas recientemente por el BCE por medio de un modelo VAR Global que explota la variacion existente entre las variables de las economias que conforman el area del euro y tiene en cuenta de forma explicita las interdependencias entre paises. La estimacion del modelo muestra que las medidas de politica monetaria no convencional tienen efectos positivos sobre la actividad, el credito, la inflacion y el precio de los activos, y producen una depreciacion del tipo de cambio. La mayoria de los paises miembros se benefician de estas medidas, pero existe un elevado grado de heterogeneidad. Una parte muy significativa de esta heterogeneidad se explica por las interacciones entre las economias del area del euro, recogidas explicitamente en nuestro modelo, que a su vez amplifican sustancialmente los efectos estimados. Si se compara con la politica monetaria convencional (expansiva), las medidas de caracter no convencional parecen ser mas efectivas en la coyuntura actual para reducir el coste de financiacion de las empresas y potenciar el credito.

Is a Calvo Price Setting Model Consistent with Individual Price Data

This paper shows that the standard Calvo model clearly fails to account for the distribution of price durations found in micro data. We propose a novel price setting model that fully captures heterogeneity in individual pricing behavior. Specifically, we assume that there is a continuum of firms that set prices according to a Calvo mechanism, each of them with a possibly different price adjustment parameter. The model is estimated by maximum likelihood and closely matches individual consumer and producer price data. Incorporating estimated price setting rules into a standard DSGE model shows that fully accounting for pricing heterogeneity is crucial to understanding inflation and output dynamics. The standard calibration that assumes within sector homogeneity, as in Carvalho (2006), is at odds with micro data evidence and leads to a substantial distortion of estimates of the real impact of monetary policy.

Micro-Based Estimates of Heterogeneous Pricing Rules: The United States vs. The Euro Area

This paper presents US and euro area estimates for a fully heterogeneous model, in which there is a continuum of firms setting prices with a constant probability of adjustment, which may differ from firm to firm. The estimated model accurately matches the empirical distribution function of individual price durations for the US and the euro area. Incorporating these micro-based pricing rules into a DSGE model, we find that nominal shocks have a greater real impact in the fully heterogeneous economy than in the standard Calvo model. We also find that nominal and real shocks bring about a reallocation of resources among sectors. Monetary policy is found to have a greater real impact in the euro area than in the United States.

Is a Calvo price setting model consistent with micro price data

This paper shows that the standard Calvo model clearly fails to account for the distribution of price durations found in micro data. We propose a novel price setting model that fully captures heterogeneity in individual pricing behavior. Specifically, we assume that there is a continuum of firms that set prices according to a Calvo mechanism, each of them with a possibly different price adjustment parameter. The model is estimated by maximum likelihood and closely matches individual consumer and producer price data. Incorporating estimated price setting rules into a standard DSGE model shows that fully accounting for pricing heterogeneity is crucial to understanding inflation and output dynamics. The standard calibration that assumes within sector homogeneity, as in Carvalho (2006), is at odds with micro data evidence and leads to a substantial distortion of estimates of the real impact of monetary policy.

Inflation dynamics in a model with firm entry and (some) heterogeneity

We analyse the incidence of endogenous entry and firm TFP-heterogeneity on the response of aggregate inflation to exogenous shocks. We build up an otherwise standard DSGE model in which the number of firms is endogenously determined and firms differ in their steady state level of productivity. This splits the industry structure into firms of different sizes. Calibrating the different transition rates, across firm sizes and out of the market we reproduce the main features of the distribution of firms in Spain. We then compare the inflation response to technology, interest rate and entry cost shocks, among others. We find that structures in which large (more productive) firms predominate tend to deliver more muted inflation responses to exogenous shocks.

Meeting our D€STINY. A Disaggregated €uro area Short Term INdicator model to forecast GDP (Y) growth

In this paper we propose a new real-time forecasting model for euro area GDP growth, D€STINY, which attempts to bridge the existing gap in the literature between large- and small-scale dynamic factor models. By adopting a disaggregated modelling approach, D€STINY uses most of the information available for the euro area and the member countries (around 100 economic indicators), but without incurring in the nite sample problems of the large-scale methods, since all the estimated models are of a small scale. An empirical pseudo-real time application for the period 2004-2013 shows that D€STINY´s forecasting performance is clearly better than the standard alternative models and than the publicly available forecasts of other institutions. This is especially true for the period since the beginning of the crisis, which suggests that our approach may be more robust to periods of highly volatile data and to the possible presence of structural breaks in the sample.

Model of the Banco de Espana

This book provides a description of the main macroeconomic models used by the European Central Bank and the euro area national central banks (Eurosystem). These models are used to help prepare economic projections and scenario analysis for individual countries and the euro area as a whole.