A Decentralized DSGE Model

In previous articles, we went through a simple DSGE model. We computed first order conditions and steady-state equations and we ran a simulation in Dynare. Maybe some of you were confused by one thing: there was no firm in the model. We had only a representative household, we even had a production function, but this function was a part of a household budget constraint. Isn’t this strange? Where is the firm? And where is a profit maximization task? We will discuss it in this article. We will define a new DSGE model which contains both firm and household. Then we will solve it and we will run a new simulation in Dynare.

There are several ways how to define the environment of the model. This is the “standard” way which you may know from the basic economics courses: There are households and firms in the model. The households provide labor and savings to the firms and firms provide consumption goods to the households. Transactions are made on labor, capital and consumption goods markets. This is the case which we are analyzing in this article.

We could use a different definition. The household can perform the functions of the firm: it can employ adult members of the family as workers and consume the produced goods. The savings of the household are used as capital.

We could also assume that the economy contains an element which is called a benevolent social planner. The social planner has no connection to socialism, communism or any other totalitarian regime. In DSGE models, the social planner is only a formal assumption which makes the solution of the model easier. The solution of the model is exactly the same for both versions. The social planner dictates the choices of consumption to maximize the household utility. This is why we call the planner benevolent. Its only desire is the household’s welfare.

Decision Tree for Statistical Tests

Students, who study some subject about statistics, have often problems with choosing a proper statistical test for their task. To select a proper test, you need to consider following facts:

  • the hypothesis which you need to test,
  • the structure of your data (do you have one sample from one population, two samples from two populations, or even more?),
  • your knowledge about population(s) (like population distribution type, variance etc.).

I have created a decision tree in iBokse application to make these decisions easier for you. You can open the tree by clicking on a picture below.


City Tour in Zagreb

As I promised in my article about EPM 2017, I am writing a post about our city tour. I am adding some photographs of the city.

Our tour started near main train station. You can see a statue of famous Croatian king Tomislav on the photo (by the way, Tomislav was also a name of our city guide). It is not a coincidence that he rides on the horse – you can find plenty of statues of other famous historical characters of Croatia. And a lot of them ride on horses. In the background, you can see Art Pavilion (Umjetnički paviljon).


European Planning Meeting EPM Zagreb 2017

In the last week, I attended European Planning Meeting. It is one of the most important events organized by student organization AEGEE. I became a member of this organization during my university studies and despite I have already finished both of my Master’s Degrees, I am still maintaining my membership.

European Planning Meeting took place to Zagreb (capital city of Croatia) this year. Maybe it will be a surprise for you, but I have never been in Croatia there. I saw this event as a chance to finally visit this country. I was also interested in its topic: “Europe under Siege: Populism and Anti-European Agitation.” I must add that my opinions on this topic may be quite different from mainstream opinions of both European youth or AEGEE member. But I was really looking forward to hearing arguments of people with different opinions. After all, listening to people that I fully agree with can be pretty boring.

I would like to offer you my personal report from this event. I will focus on aspects which differ EPM from other AEGEE events and projects (like Summer University project). I hope that everybody knows that there are amazing parties on every AEGEE event and that you can always meet plenty of wonderful people there. But let’s look at additional values of EPM. I want to highlit the most interesting facts and argument from speeches and discussions.