SIGMA: A New Open Economy Model for Policy Analysis

Erceg, Christopher J.; Guerrieri, Luca; Gust, Christopher J.

Working Paper

SIGMA: A New Open Economy Model for Policy Analysis

Abstract: In this paper, we describe a new multi-country open economy SDGE model named \"SIGMA\" that we have developed as a quantitative tool for policy analysis. We compare SIGMA's implications to those of an estimated large scale econometric policy model (the FRB/Global model) for an array of shocks that are often examined in policy simulations. We show that SIGMA?s implications for the near-term responses of key variables are generally similar to those of FRB/Global. Nevertheless, some quantitative disparities between the two models remain due to certain restrictive aspects of SIGMA?s optimization-based framework. We conclude by using long-term simulations to illustrate some areas of comparative advantage of our SDGE modeling framework.

Keywords: SDGE model; open economy macroeconomics;

JEL Classification: E32; F41;