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Independent Monetary Policy Versus a Common Currency: A Macroeconomic Analysis for the Czech Republic Through the Lens of an Applied DSGE Model

Jan Bruha and Jaromir Tonner

Working Papers from Czech National Bank

Abstract: The goal of this paper is to contribute to the understanding of the macroeconomic costs and benefits of euro adoption by the Czech economy through the lens of the CNB's official structural macroeconomic model - called g3. To do so, we perform simulations using the g3 model and a modification thereof with a fixed nominal exchange rate and with the policy rate given by the ECB. First, we compare the unconditional volatilities of selected macro variables implied by the two models. Second, we use the g3 model to filter the historical data to identify the structural shocks that affected the Czech economy in the past ten years, and we then use the modified model to simulate the counterfactual outcome of what would have happened to the Czech economy if the euro had been adopted in the past. Our results indicate that euro adoption would have had positive effects on the levels of macroeconomic variables at the cost of an increase in nominal volatility.

Keywords: DSGE model; euro; monetary policy (search for similar items in EconPapers)
JEL-codes: E47 E52 F45 F47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac, nep-mon and nep-tra
Date: 2018-12
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https://www.cnb.cz/export/sites/cnb/en/economic-re ... wp/cnbwp_2018_19.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2018/19

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