Economics at your fingertips  

Fiscal DSGE model for Latvia

Ginters Buss and Patrick Grüning
Additional contact information
Patrick Grüning: Research Division, Latvijas Banka, Riga, Latvia

Baltic Journal of Economics, 2023, vol. 23, issue 1, 2173915

Abstract: We develop a fiscal dynamic stochastic general equilibrium (DSGE) model for policy simulation and scenario analysis purposes tailored to Latvia, a small open economy in a monetary union. The fiscal sector elements comprise public investment, public consumption, government transfers that are asymmetrically directed to both optimizing and restricted (hand-to-mouth) households, cyclical unemployment benefits, foreign ownership of public debt, import content in public consumption and investment, and fiscal rules for each fiscal instrument. The model features a search-and-matching labour market friction with pro-cyclical labour costs, a financial accelerator mechanism, and import content in final goods. We estimate the model using Latvian data, study the new channels in the model, and provide a comprehensive analysis on the macroeconomic effects of the fiscal elements. Our results indicate that Latvian fiscal policy was pro-cyclical during the boom-bust period of 2004–2010 and that foreign ownership of public debt breaks Ricardian equivalence and raises fiscal multipliers.

Keywords: Small open economy; fiscal policy; fiscal rules; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E27 E32 F41 H20 H30 H63 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Working Paper: Fiscal DSGE Model for Latvia (2020) Downloads
Working Paper: Fiscal DSGE Model for Latvia (2020) Downloads
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:

Access Statistics for this article

More articles in Baltic Journal of Economics from Baltic International Centre for Economic Policy Studies Contact information at EDIRC.
Bibliographic data for series maintained by Anna Zasova ().

Page updated 2023-06-15
Handle: RePEc:bic:journl:v:23:y:2023:i:1:p:2173915