The Convergence Dynamics of a Transition Economy: The Case of the Czech Republic

Jan Bruha, Jiri Podpiera and Stanislav Polak

No 2007/116, IMF Working Papers from International Monetary Fund

Abstract: In this paper we develop a two-country dynamic general equilibrium model by means of which we seek to explain the long-run paths of a converging emerging market economy. We borrow a paradigm from the New Open Economy Macroeconomics literature and amend it to address specific features such as initial asymmetry in development and size of economies as well as different speed of capital accumulation. Using a calibration of productivity and deep parameters for the Czech economy we demonstrate the ability of the model to consistently replicate dynamics in key macroeconomic variables that are essential inputs for commonly used "gap models" in monetary policy routine. Based on the calibration we draw implications for future convergence of the Czech economy.

Keywords: WP; exchange rate; monetary policy; production function; Two-country modeling; Convergence; emerging market economy; market structure; fixed cost; eligible firm; firm productivity; firm of vintage; Real exchange rates; Productivity; Exports; Total factor productivity; Emerging and frontier financial markets; Eastern Europe (search for similar items in EconPapers)
Pages: 48
Date: 2007-05-01
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Citations: View citations in EconPapers (4)

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Journal Article: The convergence dynamics of a transition economy: The case of the Czech Republic (2010)
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