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- Title
Implications of state-dependent pricing for DSGE model-based policy analysis in Indonesia.
- Authors
Lie, Denny
- Abstract
This paper builds a small open economy dynamic stochastic general equilibrium (DSGE) model for Indonesia with state-dependent pricing (SDP) and studies its implications for policy analysis. Variations in the extensive margin of price adjustment under SDP are shown to non-trivially affect the model-generated variance decompositions and impulse responses to various shocks. DSGE model-based policy analyses conducted without this extensive margin feature might therefore lead to inaccurate policy prescriptions. In particular, the SDP model would call for a greater degree of monetary easing in response to the COVID-19 pandemic, than that prescribed by the standard time-dependent pricing (TDP) model.
- Subjects
INDONESIA; POLICY analysis; COVID-19 pandemic; IMPULSE response; FREE trade
- Publication
Economic Analysis & Policy, 2021, Vol 71, p532
- ISSN
0313-5926
- Publication type
Article
- DOI
10.1016/j.eap.2021.06.003