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Inside PESSOA -A Detailed Description of the Model
E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
F41 - Open Economy Macroeconomics
H62 - Deficit; Surplus
This article presents a detailed description of PESSOA - Portuguese Economy Structural Small Open Analytical model. PESSOA is a dynamic general equilibrium model that can be applied to any small economy integrated in a monetary union. The main theoretical reference behind its structure is Kumhof, Muir, Mursula, and Laxton (2010). The model features non-Ricardian characteristics, a multi-sectoral production structure, imperfect market competition, and a number of nominal, real, and financial rigidities. PESSOA has been calibrated to match Portuguese and euro area data and used to illustrate a number of key macroeconomic issues, ranging from the effects of structural reforms to alternative fiscal policy options.