Importance In this paper we analyse the importance of accounting for the consumption habits in the general equilibrium model of the Russian economy.
Objectives The purpose of the research is to identify the impact of the consumption habits to the dynamics of the main macroeconomic variables of general equilibrium models. Nowadays Russian authors use consumption habits of households in the dynamic stochastic general equilibrium models, however, there is still no empirical evidence of this phenomenon for the Russian economy.
Methods Consumption habits suggest that consumption level is not significant by itself, it is compared with the benchmark consumption level: the previous consumption of a particular individual or aggregate past consumption. Thus, the utility function of an individual is formed in two specifications: with the habit formation and without. On the basis of the dynamic stochastic general equilibrium model (DSGE) by F. Smets and R. Wouters we analyze the dynamics of the model in two specifications under shocks. We compare impulse response functions for the main macroeconomic variables. Then we consider the dynamics of the real consumption of nondurables of Russian households. We use statistics of the real consumption of nondurable goods in the global financial crisis of 2008-2009 and after it.
Results The analysis shows that the initial response to shocks differs significantly: the habits cause more moderate and postponed reaction in consumption and smoother response in production. The data shows delayed reaction of real expenditures to changes in the fundamentals and slow adjustment to the new equilibrium.
Discussion Thus additional "rigidity" in the model allows to simulate lagged reaction of real variables to economic shocks.
Conclusions and Relevance The analysys shows that accounting for habit formation helps to model lagged "humpshaped" response of the real expenditures to the economic shocks, which is in general consistent with the data.
Stabilizing monetary policy in a small open economy is constrained by the open economy trilemma. In this paper we investigate whether foreign exchange market interventions and the Central Bank’s credit rationing at the official rate (CROR) may soften this constraint and improve the results of monetary policy for different monetary regimes. We construct a DSGE model appropriate for analysing the forward-looking behaviour of households facing non-zero probabilities of losing access to financial market and CROR.
We have found significant credit rationing in the quarterly Russian data of 2001:Q1–2014:Q2. The probability of losing access to financial market and the probability of CROR are estimated as 22% and 66%, respectively. Using Russian data of 2001:Q1–2014:Q2 we demonstrate that CROR provoked forward-looking activity in financial market, which led to more Ruble devaluation in the crises of 2008-2009. It improved poor countercyclical performance of two Russian monetary policy rules, whereas made small effect on welfare. Welfare maximization exercises reveal a trade off between low-inflation and high-welfare solutions and favour of a floating exchange rate regime. We found the optimal value of the probability of CROR in both exchange rate-based and Taylor rule-based models but resulting improvement in welfare is very small.
A dynamic stochastic general equilibrium model with multiple sectors is constructed. The production is divided into 5 sectors: mining; manufacturing; electricity, gas and water; trade, transport and communication; other. The interaction of sectors includes competition for different sources of demand and production factors. They also use production of other sectors as production factor. The model is estimated on 29 time-series of Russia statistical data with maximum likelihood method. The model produces high quality of out-of-sample forecasts (better than autoregressions). The consequences of export price decline, restriction of access to foreign finance, tighter monetary policy and higher government spending are computed.