A Basic DSGE Model of the Czech Economy

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Authors

MUSIL Karel VAŠÍČEK Osvald

Year of publication 2008
Type Article in Proceedings
Conference Mathematical Methods in Economics 2008
MU Faculty or unit

Faculty of Economics and Administration

Citation
Field Economy
Keywords NK DSGE model - output growth rule model - Taylor rule - inflation targeting - Bayesian estimation - rational expectations
Description The paper introduces a basic New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) model of the Czech economy. It is a closed economy model with tradable and non-tradable sectors based on microeconomic foundations. The model consists of representative agents. Behavior of a representative household contains rigidities in consumption in a form of a habit formation. Price setting behavior of a representative firm is described by the Calvo style (with a result in a New Keynesian Phillips Curve, NKPC). Central monetary authority implements monetary policy according to a modified Taylor rule (output growth rule model) in the inflation targeting regime. A Bayesian method is used for the estimation of the linearized model equations. A basic analysis of the estimated model is carried out through a description of parameters and impulse response functions analysis. The model seems to be a suitable approximation of the Czech economy behavior and it can be extended to a form of a more complex model structure.
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