The Global Economy Model: Theoretical Framework

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Abstract: This paper has two purposes. First, it provides a thorough exposition of the theoretical framework underlying the Global Economy Model (GEM), as the model stands in early 2008. Second, it discusses a number of variants and alternative features considered in the GEM-related literature since Laxton and Pesenti (2003). For an updated survey of GEM and other dynamic, stochastic, general-equilibrium applications at the IMF, the reader is referred to Botman and others (2007). Each section starts with a formal description of the relevant equations, and is followed by a presentation of modeling variants and options. When appropriate, the section provides a more detailed discussion of how the building blocks of GEM relate to the literature. It is worth emphasizing from the very beginning that the paper is meant to be used as a technical reference on GEM and related models, with apologies for the somewhat pedantic attention to details and formulas that stems directly from this premise. [JEL E27, E37, F37, F47]