Rafaela Pérez

Disentangling the Effects of Supply and Demand Shocks: A DSGE Model for the Spanish Economy☆

Abstract In this paper we use a small open economy Dynamic Stochastic General Equilibrium Model (DSGE) for Spanish economy to search for a deeper characterization of the determinants of Spains macroeconomic fluctuations throughout the period 1970-2008. In order to do this, we distinguish between tradable and non-tradable goods to take into account the fact that the presence of non-tradable goods in this economy is one of the largest in the world. We estimate a DSGE model with supply and demand shocks (sectorial productivity, public spending, international real interest rate and preferences) using Kalman Filter techniques. We find the following results. First of all, our variance decomposition analysis suggests that 1) the preference shock basically accounts for private consumption volatility 2) the idiosyncratic productivity shock accounts for non tradable output volatility; and 3) the sectorial productivity shock along with the international interest rate both greatly account for tradable output. Secondly, the model closely replicates the time path observed in the data for the Spanish economy and finally, the model captures the main cyclical qualitative features of this economy reasonably well.

Private consumption and sector price behaviour in the Spanish economy: a business cycle approach

In this article we examine the consequences of introducing tradable, nontradable and investment goods in a small open economy business cycle model in the case of Spain. The stochastic simulation of the model and its comparison to the Spanish economic data show that the model is able to mimic two prominent features of the Spanish cycle: (1) the dual inflation phenomenon, that is, the cyclical properties of the divergent behaviour between nontradable and tradable prices; and (2) the high volatility of private consumption relative to the volatility of output, a feature known as the Dolado et al. puzzle.