The banking and distribution sectors in a small open economy DSGE Model

Szabolcs Deak, Lionel Fontagné, Marco Maffezzoli () and Massimiliano Marcellino

No 454, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: The recent crisis has emphasized the role of financial - macroeconomic interactions, and international trade in goods and services, in the transmission of the shocks. Both phenomena, closely related to the higher degree of globalization, are very relevant for small open economies, and particularly so when a large share of the economy relies on financial and distribution services. Hence, in this paper we propose to incorporate the banking and distribution sectors into a medium scale DSGE model of a small open economy. As an illustration, the resulting model is then calibrated to match the specific characteristics of the Luxembourg economy, where the financial sector plays a key role. We believe that the results are also of more general interest for studying the reaction of small open economies to real and financial shocks. JEL Codes: E13; E32; Keywords: DSGE model, Small open economy, Banking, International trade, Luxembourg, Segmented labor market; Trade union

Date: 2012
New Economics Papers: this item is included in nep-ban, nep-dge and nep-opm
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Working Paper: The banking and distribution sectors in a small open economy DSGE Model (2012)
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