July 2005 (Revised January 2006)

SIGMA: A New Open Economy Model for Policy Analysis

Christopher J. Erceg, Luca Guerrieri, and Christopher Gust


In this paper, we describe a new multi-country open economy SDGE model named "SIGMA" that we have developed as a quantitative tool for policy analysis. We compare SIGMA's implications to those of an estimated large-scale econometric policy model (the FRB/Global model) for an array of shocks that are often examined in policy simulations. We show that SIGMA's implications for the near-term responses of key variables are generally similar to those of FRB/Global. Nevertheless, some quantitative disparities between the two models remain due to certain restrictive aspects of SIGMA's optimization- based framework. We conclude by using long-term simulations to illustrate some areas of comparative advantage of our SDGE modeling framework.

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Keywords: SDGE model, open-economy macroeconomics

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