An estimated two-country EA-US model with limited exchange rate pass-through

Grégory de Walque, Thomas Lejeune, Yuliya Rychalovska () and Raf Wouters
Additional contact information
Yuliya Rychalovska: University of Namur

No 317, Working Paper Research from National Bank of Belgium

Abstract: We develop a two-country New Keynesian model with sticky local currency pricing,distribution costs and a demand elasticity increasing with the relative price. These features help to reduce the exchange rate pass-through to import price at the border and down the chain towards consumption price, both in the short and the long run. Oil and imported goods enter at the same time as inputs in the production process and as consumption components. The model is estimated using Bayesian full information maximum likelihood techniques and based on real and nominal macroeconomic series for the euro area and the United States together with the bilateral exchange rate and oil prices. The estimated model is shown to perform well in an out-of-sample forecasting exercise and is able to reproduce most of the cross-series co-variances observed in the data. It is then used for forecast error variance decomposition and historical decomposition exercises.

Keywords: Open-economy macroeconomics; DSGE models; exchange-rate pass through; Bayesian inference; forecasting; policy analysis (search for similar items in EconPapers)
JEL-codes: C11 E32 E37 F41 (search for similar items in EconPapers)
Pages: 95 pages
Date: 2017-03
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac, nep-opm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
https://www.nbb.be/doc/ts/publications/wp/wp317en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201703-317

Access Statistics for this paper

More papers in Working Paper Research from National Bank of Belgium Contact information at EDIRC.
Bibliographic data for series maintained by ().