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Fitting Armenian Data to the Simple DSGE Model with Permanent Productivity Growth

Author

Listed:
  • Haykaz Igityan

    (Monetary Policy Department, Central Bank of Armenia)

  • Hovhannes Manukyan

    (Monetary Policy Department, Central Bank of Armenia)

Abstract
This paper discusses the evaluation of structural parameters and estimated potential economic growth of Armenia using different specifications of DSGE models. We extend the simple models so that they are consistent with a balanced steady state growth path driven by deterministic labor-augmenting technological progress. Using a Bayesian likelihood approach, paper estimates DSGE models for the Armenian economy using three macro-economic time series. As a result, the dynamics of estimated potential economic growth of the model with demand and mark-up shocks is consistent with economic stylized facts contrary to other models that have no demand and markup shocks or only have one of these shocks. Additionally, estimated potential economic growth of the model with demand and markup shocks shows high correlation with other estimates of Central Bank of Armenia. Paper then structures and estimates two specifications of simple RBC model and the estimated potential economic growth of the model with persistent permanent productivity is identical with DSGE’s one. We show that our models are able to beat Vector Autoregression (VAR) models in out-of-sample forecasting of economic growth.

Suggested Citation

  • Haykaz Igityan & Hovhannes Manukyan, 2020. "Fitting Armenian Data to the Simple DSGE Model with Permanent Productivity Growth," Working Papers 14, Central Bank of the Republic of Armenia.
    • Handle: RePEc:ara:wpaper:014
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    File URL: https://www.cba.am/EN/panalyticalmaterialsresearches/Analytical_03.02.2020.pdf
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    References listed on IDEAS

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    Cited by:

    1. Haykaz Igityan & Hasmik Kartashyan, 2021. "Housing Market Drivers and Dynamics in Armenia," Working Papers 16, Central Bank of the Republic of Armenia.

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    More about this item

    Keywords

    Bayesian Estimation; VAR; Real Business Cycles; DSGE;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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