Discussion of the paper “A rational expectations model for simulation and policy evaluation of the Spanish economy”

Javier J Pérez

doi:10.1007/s13209-009-0017-4

Abstract

Rational expectations model for simulation (REMS) is a state-of-the-art DynamicStochastic General Equilibrium model (DSGE model) of the kind used in many pol-icy institutions throughout the world. It shares a number of common features withstandard models along this line of research, but also displays a number of speciﬁcfeatures that makes it appealing for ﬁscal policy simulations. Indeed, among otherparticular features REMS encompasses: (i) a wider coverage of ﬁscal variables thanin standard DSGE models, and (ii) a labour market speciﬁed along the lines of the“search”framework.WhileIthinkthatthemodelis,ingeneral,arelevantcontributionto the literature, in my discussion I will hinge upon some weaknesses and problemswith the modelling approach and the interpretation of the results that can be identiﬁed.For the sake of brevity I will focus on just a few points, grouped in two blocks. First, Iwill comment on non-standard features of REMS, as any critique to features standardin the relevant literature will make no justice to this particular model. Second, I willdiscuss some additional issues.

Highlights

SERIEs (2010) 1:171–173 heterogeneity between households in the model, it is true that it preserves tractability
When modelling RoT consumers, Rational expectations model for simulation (REMS) incorporates some specific features of RoT that may influence the results in a way that is difficult to ascertain ex-ante
In REMS RoT consumers do not hold money balances, contrary to “Ricardian” consumers

Summary

Overview

Rational expectations model for simulation (REMS) is a state-of-the-art Dynamic Stochastic General Equilibrium model (DSGE model) of the kind used in many policy institutions throughout the world. It shares a number of common features with standard models along this line of research, and displays a number of specific features that makes it appealing for fiscal policy simulations. Among other particular features REMS encompasses: (i) a wider coverage of fiscal variables than in standard DSGE models, and (ii) a labour market specified along the lines of the “search” framework. I will comment on non-standard features of REMS, as any critique to features standard in the relevant literature will make no justice to this particular model.

Some comments on non-standard features of REMS

Findings

Other issues