Does the Foreign Income Shock in a Small Open Economy DSGE Model Fit Croatian Data?
Lucija Rogić Dumančić () and
Josip Tica ()
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Lucija Rogić Dumančić: Faculty of Economics and Business, University of Zagreb
No 1607, EFZG Working Papers Series from Faculty of Economics and Business, University of Zagreb
The paper compares theoretical impulse response functions from a DSGE model for a small open economy with an empirical VAR model estimated for the Croatian economy. The theoretical model fits the data well as long as monetary policy is modelled as a fixed exchange rate regime. The paper considers only a foreign output gap shock. A positive foreign shock increases domestic GDP and prices and decreases terms of trade, which is in compliance with theoretical assumptions. Interest rates behave differently than suggested by the estimated DSGE model, which could be explained with an unconventional interest rate transmission channel in Croatia.
Keywords: DSGE; foreign income shocks; exchange rate; Croatia; gross domestic product; Eurozone (search for similar items in EconPapers)
JEL-codes: E32 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac, nep-opm and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:zag:wpaper:1607
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