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An Estimated Model of the Small Open Czech Economy with a Non-tradable Sector

Karel Musil

Bulletin of the Czech Econometric Society, 2009, vol. 16, issue 26

Abstract: The article presents a dynamic stochastic general equilibrium (DSGE) model of a small open economy. It is based on the New Open Economy Macroeconomics (NOEM) concept and derived from microeconomic foundations. Behavior of representative households and firms contains rigidities. Structure of goods is composed of tradables and non-tradables. Monetary policy implementation is represented by a generalized Taylor rule within the inflation targeting regime. Foreign sector is exogenous, however, it is described by structural equations for a closed economy model structure. A Bayesian technique using prior information is employed for an estimation of parameters of a solved model. The estimated model and impulse response functions seem to present a suitable approximation of behavior for the small open Czech economy with inflation targeting regime.

Keywords: DSGE model; small open economy; Balassa-Samuelson effect; modified Taylor rule; inflation targeting; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: C11 C51 E52 F41 (search for similar items in EconPapers)
Date: 2009
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