Vanda Almeida

Bayesian Estimation of a DSGE Model for the Portuguese Economy

In this paper, a New-Keynesian DSGE model for a small open economy integrated in a monetary union is developed and estimated for the Portuguese economy, using a Bayesian approach. Estimates for some key structural parameters are obtained and a set of exercises exploring the models statistical and economic properties are performed. A survey on the main events and literature associated with DSGE models that motivated this study is also provided, as well as a comprehensive discussion of the Bayesian estimation and model validation techniques applied. The model features five types of agents namely households, firms, aggregators, the rest of the world and the government, and includes a number of shocks and frictions, which enable a closer matching of the short-run properties of the data and a more realistic short-term adjustment to shocks. It is assumed from the outset that monetary policy is defined by the unions central bank and that the domestic economys size is negligible, relative to the unions one, and therefore its specific economic fluctuations have no influence on the unions macroeconomic aggregates and monetary policy. An endogenous risk-premium is considered, allowing for deviations of the domestic economys interest rate from the unions one. Furthermore it is assumed that all trade and financial flows are performed with countries belonging to the union, which implies that the nominal exchange rate is irrevocably set to unity.

Income Inequality and Redistribution in the Aftermath of the 2007-2008 Crisis: The US Case

This paper provides a detailed empirical assessment of the evolution of income inequality and the redistributive effects of the tax and transfer system following the 2007-2008 crisis. It focuses on the US case, drawing on data from the Current Population Survey for the period 2007-2012. Contrary to most existing studies, it uses of a wide range of inequality indicators and looks in detail at several sections of the income distribution, allowing for a clearer picture of the heterogeneous consequences of the crisis. Furthermore, it analyses the contribution of different types of taxes and transfers, beyond the overall cushioning effect of the system, which allows for a more refined assessment of its effectiveness. Results show that although the crisis implied income losses across the whole income distribution, the burden was disproportionately born by low to middle income groups. Income losses experienced by richer households were relatively modest and transitory, while those experienced by poorer households were not only strong but also highly persistent. The redistributive system had a crucial role in taming the increase in income inequality in the immediate aftermath of the crisis, and during the GR years, particularly cash transfers. After 2010, however, its effect became weaker and income inequality experienced a new surge. The findings of this paper contribute to a better understanding of the distributional consequences of aggregate crises and the role of tax and transfer policies in stabilising the income distribution in a crisis aftermath.