Small DSGE model for the Czech economy

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Authors

MUSIL Karel

Year of publication 2009
Type Article in Proceedings
Conference Mathematical Methods in Economics 2009
MU Faculty or unit

Faculty of Economics and Administration

Citation
Field Economy
Keywords NK DSGE model; modified Taylor rule; inflation targeting; Bayesian estimation; wage and labor rigidity
Description The paper introduces a New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) model of the Czech economy. It is a closed economy model strictly based on microeconomic foundations. The model consists of three representative agents. Behavior of a representative household contains rigidities in consumption in a form of a habit formation. A production sector is divided between tradables and non-tradables. Price setting behavior of a representative firm in both sectors is described by the Calvo style resulting into a New Keynesian Phillips Curves (NKPCs). Monetary authority implements monetary policy according to a modified Taylor rule in the inflation targeting regime. The model contains extra rigidities connected to labor market (wages NKPC and labor adjustment costs). A Bayesian method is used for the estimation of the linearized model equations. A basic analysis of the estimated model is carried out through parameters description and impulse response functions. The model seems to offer a suitable approximation of the Czech economy behavior with respect to its structure.
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