A Version of a Dynamic Stochastic General Equilibrium Model for an Open Economy

Abstract: The paper presents a dynamical stochastic general equilibrium (DSGE) model for key indicators of the Russian economy. A special feature of the approach is the Keynesian microeconomic foundation, which takes into account market failures such as imperfect competition, as well as inflexible prices and wages. The second specific feature is the hypothesis of rational expectations. The model consists of a system of 17 equations describing the dynamics of key macroeconomic indicators such as GDP, inflation, interest rates, exchange rate, exports, imports, and consumption relative to its equilibrium trajectories. The model is designed to assess the nature of the reaction of key economic indicators to fluctuations in exogenous factors. Using the constructed model, the effects on key macroeconomic indicators from demand shocks, total factor productivity, and changes in the world’s interest rates are estimated. The results of modeling and calculations can be used by monetary authorities to develop monetary policy. © 2020, Pleiades Publishing, Ltd.