Ratto Marco

Bio: Ratto Marco is an academic researcher. The author has contributed to research in topics: Dynamic stochastic general equilibrium & Open economy. The author has an hindex of 5, co-authored 10 publications receiving 574 citations.

Dynare: Reference Manual Version 4

Abstract: Dynare is a software platform for handling a wide class of economic models, in particular dynamic stochastic general equilibrium (DSGE) and overlapping generations (OLG) models. The models solved by Dynare include those relying on the rational expectations hypothesis, wherein agents form their expectations about the future in a way consistent with the model. But Dynare is also able to handle models where expectations are formed differently: on one extreme, models where agents perfectly anticipate the future; on the other extreme, models where agents have limited rationality or imperfect knowledge of the state of the economy and, hence, form their expectations through a learning process. Dynare offers a user-friendly and intuitive way of describing these models. It is able to perform simulations of the model given a calibration of the model parameters and is also able to estimate these parameters given a dataset. Dynare is a free software, which means that it can be downloaded free of charge, that its source code is freely available, and that it can be used for both non-profit and for-profit purposes.

An Estimated Open-economy Model for the EURO Area

Abstract: We estimate a small open economy DSGE model for the euro area. The household sector optimises an intertemporal utility function with habit persistence. Households decide about asset accumulation, consumption and sets wages in a monopolistically competitive labour market. Households trade bonds internationally and there is a risk premium determined by the degree of foreign indebtedness. Firms are owned by domestic households. Consistent with the household objective function they determine labour demand, capacity, investment and they set prices in a monopolistically competitive goods market by maximising the market value of the corporate sector. Apart from technological constraints, decisions are subject to convex adjustment costs. Monetary policy is modelled via a Taylor rule. A Bayesian estimation approach is applied, using the Dynare code, by Michel Juillard, via the log-linearisation of the model around the steady state, solution of the forward looking log-linear model and computation of the likelihood via Kalman filter. After estimating the posterior mode via standard optimisation routines, the posterior distribution of model parameters is estimated with a Metropolis Markov Chain Monte Carlo approach. Unobserved components are also derived, such as technology, target inflation, capital utilisation. A full Bayesian impulse response analysis is then performed, comprising a detailed sensitivity analysis of the main dynamical features of the model simulations versus changes in model parameters.

Fiscal Policy in an Estimated Open-economy Model for the Euro Area

Abstract: This paper uses an estimated DSGE model for the euro area to study the effects of fiscal stabilisation policies. There are at least two features of the euro area economy which makes this analysis interesting. First, there are nominal rigidities in goods and labour markets, and there are financial market frictions with a significant share of liquidity constrained households. Second, the government is a major sector of the euro area economy. In this paper we look at fiscal stabilisation via government consumption, investment, transfers and wage taxes. We find empirical evidence for systematic countercyclical fiscal policy. Consistent with previous findings, there is a small positive fiscal multiplier in the case of transitory fiscal shocks. We find that fiscal policy is effective in stabilising GDP in the presence of demand and supply shocks. Fiscal policy helps to reduce the demand externality arising from nominal rigidities. In addition automatic stabilisation via government transfers helps to smooth consumption of liquidityconstrained household. Fiscal policy partly compensates the financial market distortion. With distorted goods, labour and financial markets we find that the estimated fiscal policy rules reduce fluctuations in euro area GDP by about 14 percent.

The Global Multi-Country Model (GM): an Estimated DSGE Model for the Euro Area Countries.JRC Working Papers in Economics and Finance, 2017/10

Abstract: This paper introduces the Global Multi-country (GM) model, an estimated multi-country Dynamic Stochastic General Equilibrium (DSGE) model of the world economy. We present the model in 3-region configurations for Euro area (EA) countries that include an individual EA Member State, the rest of the EA (REA), and the rest of the world (RoW). We provide and compare estimates of this model structure for the four largest EA countries (Germany, France, Italy, and Spain). The novelty of the paper is the estimation of ex-ante identical country models on the basis of a unified information set, which allows for clean crosscountry comparison of parameter estimates and drivers of economic dynamics. The paper also provides an overview of applications of the GM model such as the structural interpretation of business cycle dynamics, the contribution to the European Commission’s economic forecast, the scenario analysis and policy counterfactuals.

Using a DSGE model to look at the recent Boom-Bust Cycle in the US

Abstract: This paper presents a DSGE model with residential investment and credit-constrained households estimated with US data over the period 1980Q1-2008Q4. In order to better understand speculative movements of house prices, we model land as an exhaustible resource, implying that house prices have asset market characteristics.We conduct an event study for the US over the period 1999Q1-2008Q4 which has been characterised by a housing boom and bust and examine which shocks have contributed to the evolution of GDP and its components over this period. We devote special attention to the contribution of non-fundamental shocks to asset prices over this episode.

Uncertainty Shocks in a Model of Effective Demand

Abstract: This paper examines the role of uncertainty shocks in a one-sector, representative-agent dynamic stochastic general equilibrium model. When prices are flexible, uncertainty shocks are not capable of producing business cycle co-movements among key macro variables. With countercyclical markups through sticky prices, however, uncertainty shocks can generate fluctuations that are consistent with business cycles. Monetary policy usually plays a key role in offsetting the negative impact of uncertainty shocks. If the central bank is constrained by the zero lower bound, then monetary policy can no longer perform its usual stabilizing function and higher uncertainty has even more negative effects on the economy. Calibrating the size of uncertainty shocks using fluctuations in the VIX, the authors find that increased uncertainty about the future may indeed have played a significant role in worsening the Great Recession, which is consistent with statements by policymakers, economists, and the financial press.

Uncertainty Shocks in a Model of Effective Demand

Abstract: This paper examines the role of uncertainty shocks in a one-sector, representative-agent dynamic stochastic general-equilibrium model. When prices are exible, uncertainty shocks are not capable of producing business-cycle comovements among key macro variables. With countercyclical markups through sticky prices, however, uncertainty shocks can generate uctuations that are consistent with business cycles. Monetary policy usually plays a key role in osetting the negative impact of uncertainty shocks. If the central bank is constrained by the zero lower bound, then monetary policy can no longer perform its usual stabilizing function and higher uncertainty has even more negative eects on the economy. Calibrating the size of uncertainty shocks using uctuations in the VIX, we nd that increased uncertainty about the future may indeed have played a signicant role in worsening the Great Recession, which is consistent with statements by policymakers, economists, and the nancial press.

Shaping the World Economy. Suggestions for an International Economic Policy. By Jan Tinbergen. New York: The Twentieth Century Fund, 1962. pp. xvii, 330. Index. 4.00, cloth.

Abstract: textabstractIn Dutch: Naar een Nieuwe Wereldeconomie: voorstellen voor een internationaal economisch beleid, Rotterdam University Press, Rotterdam, 1965, XV + 335 p. In Spanish: Hacia Una Economia Mundial: sugerencias para una politica economica internacional, Series Biblioteca de Economia No.7, Orbis, Barcelona, 1985, 242 p.

Inflation Dynamics During the Financial Crisis

Abstract: Using confidential product-level price data underlying the U.S. Producer Price Index (PPI), this paper analyzes the effect of changes in firms’ financial conditions on their price-setting behavior during the ”Great Recession” that surrounds the financial crisis. The evidence indicates that during the height of the crisis in late 2008, firms with “weak” balance sheets increased prices significantly relative to industry averages, whereas firms with “strong” balance sheets lowered prices, a response consistent with an adverse demand shock. These stark differences in price-setting behavior are consistent with the notion that financial frictions may significantly influence the response of aggregate inflation to macroeconomic shocks. We explore the implications of these empirical findings within a general equilibrium framework that allows for customer markets and departures from the frictionless financial markets. In the model, firms have an incentive to set a low price to invest in market share, though when financial distortions are severe, firms forgo these investment opportunities and maintain high prices in an effort to preserve their balance-sheet capacity. Consistent with our empirical findings, the model with financial distortions—relative to the baseline model without such distortions—implies a substantial attenuation of price dynamics in response to contractionary demand shocks.