New Area-Wide Model (NAWM) wage setting

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New Area-Wide Model (NAWM) wage setting

Postby jefbref » Fri Mar 15, 2013 12:13 pm

Hi, I am trying to estimate ECB's New Area-Wide Model (NAWM) of Christoffel, Coenen and Warne. In their paper, authors have included a section with the log-linearized model but I am trying to implement the model using the loglinear option in the estimation command instead of using the log-linearized equations but I am having problems figuring out how to include the wage equations. In their log-linearized version, authors note that they use a wage Phillips curve in addition to the equations of the model, but the first order condition characterising the households' optimal wage setting decision includes an infinite sum (equation 14 in the paper).

How can I ask Dynare to take into account this equation? Thanks in advance.
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The new Area-Wide Model of the euro area - a micro-founded open-economy model for forecasting and policy analysis.pdf
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Re: New Area-Wide Model (NAWM) wage setting

Postby jpfeifer » Sat Mar 16, 2013 8:12 pm

In general, there are only two ways: log-linearize manually so that the infinite sum vanishes and enter the FOC in its linearized finite version (the way e.g. Gali (2008) gets rid of the infinite sum in the firm's Calvo price-setting) or find a recursive representation of the infinite sum so that the non-linear version also has a finite representation that can be entered (e.g. the way Schmitt-Grohe/Uribe solved the firm's Calvo problem).

If you are not able to find a recursive finite representation, you cannot enter the full nonlinear equation to Dynare.
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Johannes Pfeifer
University of Cologne
https://sites.google.com/site/pfeiferecon/
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Re: New Area-Wide Model (NAWM) wage setting

Postby jefbref » Mon Mar 18, 2013 8:11 am

Thank you jpfeifer, I will look more into it.
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Re: New Area-Wide Model (NAWM) wage setting

Postby selima » Tue Jan 21, 2014 10:35 am

I would like to know if this model can be used in an emergent economy like Turkey because it was used before in Brazil , thank you for answering me
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