Monetary and Fiscal Policy (MonFisPol)

The CEPREMAP modelling team contributes to the Monetary and Fiscal Policy (MonFisPol) project. The MonFisPol project receives support from European Commission via its Seventh Framework Programme for Research (FP7) in the field of Socio-economic Sciences and Humanities (SSH). CEPREMAP is both a research member of the MonFisPol consortium and the coordinator of the consortium.

The goal of the MonFisPol project is to contribute to the evaluation of macroeconomic policy by advancing the analysis of optimal fiscal and monetary policy in monetary union such as the European one. This work has resulted in the addition of new numerical tools, specially designed for the computation of optimal policy in large macroeconometric models. Such multicountry models are necessary to take into account the diversity of the countries making now the European Union. These new tools for the computation of optimal policy have been added to Dynare.

New model developments are focused around the contribution of optimal fiscal policy to smooth shocks in a union of heterogeneous countries with rigidities in labor and financial markets. Special attention is given to the dynamics of public debt in such environment.

Systematic models comparison have been made possible through the building of a database of macroeconomic models currently in use in policy making institutions around the world.

New numerical tools have been added to Dynare that provide for the computation of optimal policy, either under commitment, in a timeless perspective or under discretion, for a very general class of nonlinear models. Particular attention is given to correct linear quadratic approximation of these problems. Extensions have been made to the partial information case. These tools also permit to perform Bayesian estimation of these models under the assumption that the policies followed were optimal. Special emphasis is placed on the definition of priors. Given the complexity of the numerical computations, increasing the speed of computation and the development of parallel algorithms is an important part of the project.

Altogether, this project represents a very significant step forward towards better models and better tools for the formulation of macroeconomic policies.

More information (working papers, reports, software) can be found at the MonFisPol website.