•  
  •  
 

Economic and Financial Review

Publisher

Research Department, Central Bank of Nigeria.

Keywords

DSGE Models, Monetary Policy Analysis, Impulse Response Functions, Forecasting, Nigeria

Abstract

Dynamic Stochastic General Equilibrium (DSGE) models are powerful tools that provide a coherent framework for policy discussion and analysis. In principle, they can help to identify sources of fluctuations, answer questions about structural changes, help to forecast and predict the effect of policy changes, and perform counterfactual experiments. Against this background, this paper aims at providing an insightful discussion on DSGE models by developing a simplified version of the models to explain the behavior of key macroeconomic variables in Nigeria namely: the growth rate of gross domestic product (GDP), headline inflation, exchange rate and the monetary policy rate. The estimated results highlight the central role of expectations in the transmission of shocks and policy impulses in DSGE models. The main lesson that we derive from the study is that management of expectations provides an effective approach to controlling inflation.

Issue

49

Volume

1

Recommended Citation

Mordi, C.N.O., & Adebiyi, M.A. (2011). Building Dynamic Stochastic General Equilibrium Models for Monetary Policy Analysis. Economic and Financial Review, 49(1). 1-24.

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.