An estimated dynamic stochastic general equilibrium model for Estonia

Paolo Gelain and Dmitry Kulikov ()

No 2009-5, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This paper presents an estimated open economy dynamic stochastic general equilibrium model for Estonia. The model is designed to highlight the main driving forces behind the Estonian business cycle and to understand how euro area economic shocks and its monetary policy affect the small open economy of Estonia. The model described in this paper is a two-area DSGE model incorporating New Keynesian features such as nominal price and wage rigidity, variable capital utilization, investment adjustment costs, as well as other typical features - both for the domestic and euro area part of the model. It is rich in structural shocks such as technology, consumption preference, mark-up, etc. The model is estimated by Bayesian techniques using a quarterly data sample that covers main macroeconomic aggregates of Estonia and the euro area. The ultimate goal of the new model is for it to be used in simulation exercises, policy advice and forecasting at the Bank of Estonia

Keywords: monetary policy; New Keynesian models; small open economy; Bayesian statistical inference (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2009-12-30, Revised 2009-12-30
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Citations: View citations in EconPapers (13)

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