March 2006 issue contents
SIGMA: A New Open Economy Model for Policy Analysis - IJCB - March 2005

by Christopher J. Erceg, Luca Guerrieri, and Christopher Gust
Federal Reserve Board


In this paper, we describe a new multicountry 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.

JEL Codes: E32, F41.

Full article (PDF, 50 pages 2718 kb)