- “Inside PESSOA—A detailed description of the model.†Working Paper 16/2013, Banco de Portugal.
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Almeida, Vanda and Ricardo F elix. 2006. “Computing potential output and the outputgap for the Portuguese economy.†Economic Bulletin Autumn:73–88.
Almeida, Vanda, Gabriela Castro, and Ricardo Mourinho F elix. 2010. “Improving competition in the non-tradable goods and labour markets: the Portuguese case.†Portuguese Economic Journal 9 (3):163–193.
Almeida, Vanda, Gabriela Castro, Ricardo M. F elix, and Jos e R. Maria. 2013b. “Fiscal consolidation in a small euro area economy.†International Journal of Central Banking 9 (4):1–38.
Barrios, Salvador, Sven Langedijk, and Lucio Pench. 2010. “EU fiscal consolidation after the financial crisis. Lessons from past experiences.†Economic Paper 418, Directorate General Economic and Monetary Affairs, European Commission.
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Bayoumi, T. and S. Sgherri. 2006. “Mr Ricardo’s great adventure: Estimating fiscal multipliers in a truly intertemporal model.†Working Paper 06/168, International Monetary Fund.
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Berti, Katia, Francisco De Castro, and Matteo Salto. 2013. “Effects of fiscal consolidation envisaged in the 2013 Stability and Convergence Programmes on public debt dynamics in EU Member States.†Economic Paper 504, Directorate General Economic and Monetary Affairs, European Commission.
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Boussard, Jocelyn, Francisco Castro, and Matteo Salto. 2013. “Fiscal multipliers and public debt dynamics in consolidations.†In Public Debt, Global Governance and Economic Dynamism, edited by Luigi Paganetto. Springer Milan, 167–211.
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Castro, Gabriela, Ricardo M. F elix, Paulo J ulio, and Jos e R. Maria. 2014. “Financial Segmentation Shocks.†Mimeo, Banco de Portugal.
Castro, Gabriela. 2006. “Consumption, disposable income and liquidity constraints.†Economic Bulletin Summer:75–84.
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- Further details on the calibration can be found in Almeida et al. (2013a). Castro et al. (2014) places a special focus on the calibration of the financial sector.
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- Gal ı, Jordi, J David L opez-Salido, and Javier Vall es. 2007. “Understanding the effects of government spending on consumption.†Journal of the European Economic Association 5 (1):227–270.
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Høj, Jens, Miguel Jimenez, Maria Maher, Giuseppe Nicoletti, and Mikael Wise. 2007. “Product market competition in OECD countries: Taking stock and moving forward.†Economics Department Working Paper 575, Organisation for Economic Co-operation and Development.
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- Households parameters are largely based on Fagan, Gaspar, and Pereira (2004), Harrison et al. (2005), Kumhof and Laxton (2007) and Kumhof et al. (2010). Consumption shares are calibrated to ensure a unitary elasticity of labor supply to real wage. The instant probability of death and the productivity decay rate are assumed to be identical, implying an average lifetime and an expected working life of 25 years. The share of hand-to-mouth households is broadly in line with the estimates for Portugal presented in Castro (2006).
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Kilponen, Juha and Antti Ripatti. 2006. “Labour and product market competition in a small open economy: Simulation results using a DGE model of the Finnish economy.†Discussion Paper 5/2006, Bank of Finland.
- Kumhof, Michael and Douglas Laxton. 2007. “A party without a hangover? On the effects of U.S. government deficits.†Working Paper 07/202, International Monetary Fund.
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- Kumhof, Michael, Dirk Muir, Susanna Mursula, and Douglas Laxton. 2010. “The Global Integrated Monetary and Fiscal Model (GIMF)—Theoretical structure.†Working Paper 10/34, International Monetary Fund.
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Mata, Jos e, Ant onio Antunes, and Pedro Portugal. 2010. “Borrowing patterns, bankruptcy and voluntary liquidation.†Working Paper 27, Banco de Portugal.
Mulas-Granados, Carlos, Emanuele Baldacci, and Sanjeev Gupta. 2010. “Restoring debt sustainability after crises: Implications for the fiscal mix.†Working Paper 10/232, International Monetary Fund.
Musso, Alberto and Thomas Westermann. 2005. “Assessing potential output growth in the euro area: A growth accounting perspective.†Occasional Paper 22, European Central Bank.
Padoan, Pier, Urban Sila, and Paul van den Noord. 2012. “Avoiding debt traps: Financial backstops and structural reforms.†Working Papers 976, Organization for Economic Cooperation and Development.
- Proietti, Tommaso and Alberto Musso. 2007. “Growth accounting for the euro area: A structural approach.†Working Paper 804, European Central Bank.
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- Rother, Philipp, Ludger Schuknecht, and J urgen Stark. 2010. “The benefits of fiscal consolidation in uncharted waters.†Occasional Paper 121, European Central Bank. Appendices A Calibration PESSOA is calibrated to match data for the Portuguese and euro-area economies. Some parameters are exogenously set by taking into consideration common options in the literature, available historical data, or empirical evidence. Others are endogenously determined within the model, with the objective of matching desired features, for instance the consumption- or investment-to-GDP ratios.
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- Steady-state inflation stands at 2 percent per year and the euro area nominal interest rate at 4.5 percent (Coenen, McAdam, and Straub 2007). Steady-state tax rates, transfers from the rest of the euro area, government consumption, and government transfers are calibrated to match actual data.
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- The annual growth rate of the labor-augmenting productivity is set to 2 percent, which is a plausible estimate for potential output growth in both Portugal and the euro area (Almeida and F elix 2006, Musso and Westermann 2005, Proietti and Musso 2007).
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- The depreciation rate of capital is calibrated by taking into account actual data on the investment-to-GDP ratio. The unitary elasticity of substitution between capital and labor in the production function takes into account the actual labor income share. The steadystate price markup of tradable and non-tradable goods is calibrated using OECD product market regulation indicators, as well as the correlation between tradable and non-tradable goods markups and product market regulation indicators found in Høj et al. (2007). The elasticity of substitution between domestic tradable goods and imported goods is assumed to be identical across firms and set above unity (Coenen, McAdam, and Straub 2007, Harrison et al. 2005, Erceg, Henderson, and Levin 2000, Kumhof et al. 2010). The degree of monopolistic competition amongst distributors is lower than among manufacturers.
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- The leverage ratio of entrepreneurs, the probability of default, and the return on capital—assumed identical for the tradable and non-tradable sectors—are approximated with aggregate Portuguese historical features. The leverage ratio is 100 percent. The same value is used in Bernanke, Gertler, and Gilchrist (1999) and Kumhof et al. (2010). The probability of default—8 percent—is relatively close to the exit rates reported in Mata, Antunes, and Portugal (2010), and in line with the value found in Kumhof et al. (2010).
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- The loan rate spread of 175 basis points is close to the average value for the 2000-07 period.
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