Exam 15: Dsge Models: the Frontier of Business Cycle Research

In the Smets-Wouters DSGE model presented in the text, contractionary monetary policy has the largest impact on hours worked.

In the stylized DSGE model, the motivation for a rise in government expenditure ________ today is ________.

Impulse response functions can be thought of as:

A temporary increase in government spending ________, and a permanent increase in government spending ________.

Sticky nominal wages can lead to:

In the stylized DSGE model, the variable that allows future events to affect the economy today is inflation expectation.

When taxes are included in the labor market in the stylized DSGE model, real wages increase.

When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by $w = ( 1 - \tau ) \cdot M P L$ .

In the impulse response function presented in the text, the effects of contractionary monetary policy on real GDP dissipate:

The early DSGE models assumed that TFP:

With sticky prices, in the stylized DSGE model, a monetary contraction ________, which ________.

A new colleague of yours decided to try her hand at DSGE models and found some computer code that allows her to run a version of the Smets-Wouters DSGE model. She decides to try a contractionary monetary shock. When she does, she gets the following impulse response function for real GDP (left scale), consumption (left), and inflation (right). When she shows you her results you are immediately skeptical based on what you know about economic theory and impulse response functions. Explain your skepticism. Figure 15.5 Impulse response functions

In the simplified DSGE model in the text, we treat:

With sticky nominal wages a monetary expansion causes:

Refer to the following figure when answering Figure 15.1: The Labor Market -Consider Figure 15.1, which is a representation of the labor market. In 2005, Hurricane Katrina hit the Gulf Coast of the United States; this would cause a shift from curve ________ because this is an example of a(n) ________.

In the business cycle literature a better court system could be considered a negative TFP shock.

In the Smets-Wouters DSGE model, the financial friction is introduced by a(n):

You are a recent hire at the Labor Department and are asked to assess monetary policy's effects on labor markets using a stylized DSGE model with sticky prices. You read the Fed's policy statement, and given the negative output gap they decide to ________, which would ________ and ________.

The early DSGE models assumed that TFP fluctuates over time rather than growing at a constant rate.

In the DSGE framework, prospects for a "fiscal cliff" in the fall of 2012 increases ________ about the future leading firms to ________, which would ________.