The term structure of interest rates in a small open economy DSGE model with Markov switching

Roman Horvath and Aleš Maršál

No 22, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: We lay out a small open economy dynamic stochastic general equilibrium (DSGE) model with Markov switching to study the term structure of interest rates. We extend the previous models by opening up the economy and adding a foreign demand channel. As a result, we explain the term structure of Czech interest rates and that the open economy version of the model fits reasonably well the period after the adoption of inflation targeting, which was characterized by two regimes: 1) a disinflation regime and 2) a price stability regime.

Keywords: DSGE small open economy model; term structure of interest rates; regime switching (search for similar items in EconPapers)
JEL-codes: E17 G12 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:22

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