This is also the case for the DSGE model developed in the Directorate General Research, the New Area-Wide Model, is regularly used for counterfactual policy analysis.7 At the same time, a good fit of the data is to some extent accomplished by DSGE models through persistent shock processes, which questions the empirical validity of the model’s intrinsic propagation mechanisms.
One obstacle which has attained prominence recently is based on the almost mystic belief that the rate of interest has the power to offset far-reaching real effects – for example the effects on high-tech and related industries of the slowdown in the US, and the effect on tourism, construction, and agriculture of the security-related events – without our having to pay the price of a rise in the balance of payments deficit and accelerated inflation.