, Volume 1, Issue 1–2, pp 175–243 | Cite as

MEDEA: a DSGE model for the Spanish economy

  • Pablo BurrielEmail author
  • Jesús Fernández-Villaverde
  • Juan F. Rubio-Ramírez
Open Access
Original Article


In this paper, we provide a brief introduction to a new macroeconometric model of the Spanish economy named MEDEA (Modelo de Equilibrio Dinámico de la Economía EspañolA). MEDEA is a dynamic stochastic general equilibrium (DSGE) model that aims to describe the main features of the Spanish economy for policy analysis, counterfactual exercises, and forecasting. MEDEA is built in the tradition of New Keynesian models with real and nominal rigidities, but it also incorporates aspects such as a small open economy framework, an outside monetary authority such as the ECB, and population growth, factors that are important in accounting for aggregate fluctuations in Spain. The model is estimated with Bayesian techniques and data from the last two decades. Beyond describing the properties of the model, we perform different exercises to illustrate the potential of MEDEA, including historical decompositions, long-run and short-run simulations, and counterfactual experiments.


DSGE models Likelihood estimation Bayesian methods 

JEL Classification

C11 C13 E30 


  1. Adolfson M, Laséen S, Lindé J, Villani M (2005) Bayesian estimation of an open economy DSGE model with incomplete pass-through. Sveriges Riksbank Working Paper Series, 179Google Scholar
  2. An S, Schorfheide F (2006) Bayesian analysis of DSGE models. Econ Rev 26: 113–172CrossRefGoogle Scholar
  3. Andrés J, Arce O (2008) Banking competition, housing prices and macroeconomic stability. Documento de Trabajo del Banco de España 0830Google Scholar
  4. Andrés J, Burriel P, Estrada A (2006) BEMOD: a DSGE model for the Spanish economy and the rest of the Euro area. Documento de Trabajo del Banco de España 0631Google Scholar
  5. Boscá JE, Bustos A, Díaz A, Doménech R, Ferri J, Pérez E, Puch L (2007) A rational expectations model for simulation and policy evaluation of the Spanish economy. Documento de Trabajo de la Dirección General de Presupuestos D-2007-04Google Scholar
  6. Boscá JE, Díaz A, Doménech R, Pérez E, Puch L (2008) The REMSDB macroeconomic database of the Spanish economy. Documento de Trabajo de la Dirección General de Presupuestos D-2007-04Google Scholar
  7. Canova F, Sala L (2006) Back to square one: identification issues in DSGE models. ECB Working Paper No. 583Google Scholar
  8. Chari VV, Kehoe P, McGrattan ER (2007) Business cycle accounting. Econometrica 75: 781–836CrossRefGoogle Scholar
  9. Christiano L, Eichenbaum M, Evans CL (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. J Polit Econ 113: 1–45CrossRefGoogle Scholar
  10. Christoffel K, Coenen G, Warne A (2008) The new area-wide model of the Euro area: a micro-founded open-economy model for forecasting and policy analysis. ECB Working Paper No. 944Google Scholar
  11. Christoffel K, Coenen G, Warne A (2007) Conditional and unconditional forecasting with the new area-wide model of the Euro area. Mimeo, European Central BankGoogle Scholar
  12. Edge R, Kiley MT, Laforte JP (2009) A comparison of forecast performance between Federal Reserve Staff Forecasts, simple reduced-form models, and a DSGE model. Finance and Economics Discussion Series 2009–10, Board of Governors of the Federal Reserve SystemGoogle Scholar
  13. Erceg C, Henderson D, Levin A (2000) Optimal monetary policy with staggered wage and price contracts. J Monet Econ 46: 281–313CrossRefGoogle Scholar
  14. Erceg CJ, Guerrieri L, Gust C (2006) SIGMA: a new open economy model for policy analysis. Int J Central Banking 2: 1–50Google Scholar
  15. Fernández-Villaverde J (2009) The econometrics of DSGE models. SERIEs vol 1Google Scholar
  16. Fernández-Villaverde J, Rubio-Ramírez J (2004) Comparing dynamic equilibrium models to data: a Bayesian approach. J Econ 123: 153–187CrossRefGoogle Scholar
  17. Fernández-Villaverde J, Rubio-Ramírez J (2005) Estimating dynamic equilibrium economies: linear versus nonlinear likelihood. J Appl Econ 20: 891–910CrossRefGoogle Scholar
  18. Fernández-Villaverde J, Rubio-Ramírez J (2007) Estimating macroeconomic models: a likelihood approach. Rev Econ Stud 74: 1059–1087CrossRefGoogle Scholar
  19. Fernández-Villaverde J, Rubio-Ramírez J (2008) How structural are structural parameters?. NBER Macroeconomics Annual 2007: 83–137Google Scholar
  20. Fernández-Villaverde J, Rubio-Ramírez J, Santos MS (2006) Convergence properties of the likelihood of computed dynamic models. Econometrica 74: 93–119CrossRefGoogle Scholar
  21. Fisher J (2006) The dynamic effects of neutral and investment-specific technology shocks. J Polit Econ 114: 413–451CrossRefGoogle Scholar
  22. Galí J (2008) Monetary policy, inflation and the business cycle: an introduction to the New Keynesian framework. Princeton University Press, PrincetonGoogle Scholar
  23. Greenwood J, Herkowitz Z, Krusell P (1997) Long-run implications of investment-specific technological change. Am Econ Rev 87: 342–362Google Scholar
  24. Greenwood J, Herkowitz Z, Krusell P (2000) The role of investment-specific technological change in the business cycle. Eur Econ Rev 44: 91–115CrossRefGoogle Scholar
  25. Hall R (1997) Macroeconomic fluctuations and the allocation of time. J Labor Econ 15(1): 223–250CrossRefGoogle Scholar
  26. Harrison R, Nikolov K, Quinn M, Ramsey G, Scott A, Thomas R (2005) The Bank of England Quarterly Model. The Bank of EnglandGoogle Scholar
  27. Iskrev N (2008) How much do we learn from the estimation of DSGE models? A case study of identification issues in a New Keynesian business cycle model. Mimeo, University of MichiganGoogle Scholar
  28. Kilponen J, Ripatti A (2006) Introduction to AINO. Mimeo, Bank of FinlandGoogle Scholar
  29. King R, Plosser C, Rebelo S (1988) Production, growth and business cycles I: the basic neo-classical model. J Monet Econ 2: 195–232CrossRefGoogle Scholar
  30. Kortelainen M (2002) EDGE: a model of the euro area with applications to monetary policy. Bank of Finland Studies E:23Google Scholar
  31. Mengersen KL, Robert CP, Guihenneuc-Jouyaux C (1999) MCMC convergence diagnostics: a ‘Reviewww’. In: Berger J et al (eds) Bayesian statistics, vol 6, pp 415–440. Oxford Sciences Publications, OxfordGoogle Scholar
  32. McConnell MM, Pérez-Quirós G (2000) Output fluctuations in the United States: what has changed since the early 1980’s3 Am Econ Rev 90: 1464–1476CrossRefGoogle Scholar
  33. Murchison S, Rennison A (2006) ToTEM: The Bank of Canada’s New Quarterly Projection Model. Bank of Canada Technical Report, 97Google Scholar
  34. Primiceri GE, Schaumburg E, Tambalotti A (2006) Intertemporal disturbances. NBER Working Paper No. 12243Google Scholar
  35. Roberts G, Gelman A, Gilks W (1997) Weak convergence and optimal scaling of random walk metropolis algorithms. Ann Appl Probab 7: 110–120CrossRefGoogle Scholar
  36. Schmitt-Grohé S, Uribe M (2003) Closing small open economy models. J Int Econ 61: 163–185CrossRefGoogle Scholar
  37. Sims CA (2007) The Harold hotelling lecture: Bayesian methods in applied econometrics. North America Summer Meetings of the Econometric Society 2007Google Scholar
  38. Smets F, Wouters R (2003) An estimated stochastic dynamic general equilibrium model of the euro area. J Eur Econ Assoc 1: 1123–1175CrossRefGoogle Scholar
  39. Stock JH, Watson MW (2003) Has the business cycle changed, and why?. NBER Macroeconomics Annual 2002: 159–218Google Scholar
  40. Woodford M (2003) Interest and prices: foundations of a theory of monetary policy. Princeton University Press, PrincetonGoogle Scholar

Copyright information

© The Author(s) 2010

This article is published under license to BioMed Central Ltd. Open Access This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

Authors and Affiliations

  • Pablo Burriel
    • 1
    Email author
  • Jesús Fernández-Villaverde
    • 2
  • Juan F. Rubio-Ramírez
    • 3
  1. 1.Banco de EspañaMadridSpain
  2. 2.University of Pennsylvania, FEDEA, NBER, and CEPRPhiladelphiaUSA
  3. 3.Duke University, Federal Reserve Bank of Atlanta, and FEDEADurhamUSA

Personalised recommendations