An Estimated Baseline Model of the Czech Open Economy Karel Musil CNB, MU Econometric Day 28th November 2008.

Slides:



Advertisements
Similar presentations
Monetary Transmission Mechanisms in Armenia: A Preliminary Evaluation Era Dabla-Norris International Monetary Fund.
Advertisements

MACROECONOMICS What is the purpose of macroeconomics? to explain how the economy as a whole works to understand why macro variables behave in the way they.
Evaluating an estimated new Keynesian small open economy model Malin Adolfson, Stefan Laséen, Jesper Lindé, Mattias Villani Marc Goñi – 19 th April.
The Bank of Israels Monetary Model Prof. Zvi Eckstein Deputy Governor – Bank of Israel 2008 Outlook of the Local and Global Capital Markets.
A model of an optimum Currency Area Lucas Antonio Ricci Research Department, International Monetary Fund (2008)
The Bank of Israel’s New DSGE Model Project
1 Central Bank Macroeconomic Modeling Workshop Jerusalem, October 2009 Discussion on Financial Shocks and Optimal Monetary Policy in Small Open Economies.
A NEW KEYNESIAN PERSPECTIVE ON THE GREAT RECESSION WRITTEN BY: PETER IRELAND IN THE JOURNAL OF MONEY, CREDIT AND BANKING, VOL. 43 Tyler Halberg, Dylan.
Monetary Policy Issues in Israel
Capital Flows and Monetary Policy Javier Guillermo Gómez October 2009.
MACROECONOMICS Chapter 13
Practical DSGE modelling
DSGE Modelling at Central Banks: Country Practices and How it is Used in Policy Making Haris Munandar Bank Indonesia SEACEN-CCBS/BOE-BSP Workshop on DSGE.
Consumption & Saving Over Two Periods Consumption and Saving Effects of Changes in Income Effects of Interest Rates.
Measuring GDP and Economic Growth Chapter 1 Instructor: MELTEM INCE
New Keynesian economics Modern macroeconomic modeling.
CEE (2005) SW (2003, 2007) “Can models with moderate degrees of nominal rigidities generate inertial inflation and persistent output movements in response.
Determinants of Aggregate Demand in an Open Economy
The Theory of Aggregate Demand Classical Model. Learning Objectives Understand the role of money in the classical model. Learn the relationship between.
Approximate quadratic-linear optimization problem Based on Pierpaolo Benigno and Michael Woodford.
MEP 1 - Structural Macroeconomic Model for Chile: An Overview Rodrigo Valdés Central Bank of Chile Prepared for the Conference “Monetary Policy: Shocks.
Chapter 1 Introduction.
INTEREST AND PRICES MICHAEL WOODFORD. FLEX-PRICE, COMPLETE-MARKETS MODEL MICROFOUNDED CAGAN-SARGENT PRICE LEVEL DETERMINATION UNDER MONETARY TARGETING.
Fiscal Space for Investment in Infrastructure in Colombia Rodrigo Suescún The World Bank January 2005.
An Open-Economy DSGE Model with Nontradables and Remittances Ruperto Majuca, Ph.D. Lawrence Dacuycuy, Ph.D. De La Salle University, Manila Philippine Economic.
Chapter 21. Stabilization policy with rational expectations
LECTURE 2 THE NEW CONSENSUS MACROECONOMICS
7/13/2015The Consensus Macro Model1 THE CONSENSUS MACROECONOMIC MODEL A PRESENTATION BY; KHURRUM S. MUGHAL FARAZ A. KHAN XIN MIAO FOR THE SEMINAR COURSE;
Aggregate Supply and Potential Output Assaf Razin Tel Aviv University and Cornell University.
Advantage of Fixed Exchange Rate Regime in Latvia Konstantins Benkovskis Head of Monetary Research and Forecasting Division.
A Global Macroeconomic Forecasting Model for the Philippines Ruperto Majuca, Ph.D (Illinois), J.D. De La Salle University, Manila 51 st Philippine Economic.
Monetary Policy Rules in Practice: Some International Evidence By Richard Clarida, Jordi Gali & Mark Gertler Presented by Alyaa Ezzat Sept
Mr. Sloan Riverside Brookfield High school.  2 Hours and 10 Minutes Long  Section 1-Multiple Choice ◦ 70 Minutes Long ◦ Worth 2/3 of the Score  Section.
Remittances, Real Effective Exchange, and Monetary Policy Alexei Kireyev, IMF Денежные переводы, реальный эффективный валютный курс и денежно-кредитная.
Euro Area Persistence in an Estimated Nonlinear DSGE Model
The IS Curve: Derivation and Aggregation CCBS/HKMA May 2004.
Begin $100 $200 $300 $400 $500 GraphsSupplyAndDemandPoliciesAndMarkets Economies ImportantKeyTermsGDP.
Monetary Policy Responses to Food and Fuel Price Volatility Eswar Prasad Cornell University, Brookings Institution and NBER.
© 2008 Pearson Addison-Wesley. All rights reserved Introduction to Macroeconomics Chapter 1.
The International Diversification Puzzle when Goods Prices are Sticky: It’s Really about Exchange-Rate Hedging, not Equity Portfolios.
Spending, Income, and Interest Rates Chapter 3 Instructor: MELTEM INCE
Monetary Policy and Exchange Rate Pass-through: Theory and Evidence Michael B. Devereux and James Yetman.
Module 44 Exchange Rates and Macroeconomic Policy
Final Exam 3 questions: Question 1 (20%). No choice Question 1 (20%). No choice Question 2 (40%). Answer 8 out of 10 short questions. ONLY THE FIRST 8.
Recent Developments and Issues on DSGE Modelling Haris Munandar Bank Indonesia SEACEN-CCBS/BOE-BSP Workshop on DSGE Modelling and Econometric Techniques.
1 The full dynamic short-run model. 2 The Dynamic Model A nice new addition to Mankiw. Combines - IS - LM (changed to reflect central bank targeting)
Academy of Economic Studies Doctoral School of Finance and Banking DISSERTATION PAPER BUDGET DEFICIT AND INFLATION MSc. Student : Marius Serban Supervisor.
Macroeconomic model and stability analysis Osvald Vašíček Faculty of Economics and Administration of Masaryk University Department of Applied Mathematics.
Issues in the Choice of a Monetary Regime for India Warwick J. McKibbin & Kanhaiya Singh.
1 1 Open Economy Macro. 2 Agenda for Open Economy Macro A few slides on the Great Recession in the world economy Short reminder on the international monetary.
Uncovered Interest Parity with Fundamentals: A Brazilian Exchange Rate Forecast Model Marcelo Kfoury Muinhos Paulo Springer de Freitas Fabio Araujo Research.
Macroeconomics. Chapter One Introduction Macroeconomics : 1. Definition - macroeconomics is concerned with the behavior of the economy as a whole-----booms.
The Academy of Economic Studies Bucharest The Faculty of Finance, Insurance, Banking and Stock Exchange DOFIN - Doctoral School of Finance and Banking.
Lecture 7 Monetary policy in New Keynesian models - Introducing nominal rigidities ECON 4325 Monetary policy and business fluctuations Hilde C. Bjørnland.
A Panel Discussion on DSGE Modelling at Central Banks: Country Practices and How It Is Used in Policy Making by Surach Tanboon Monetary Policy Department.
Capturing the Linkages Between Real and Financial Variables: The Global Projection Model for the Philippines Ruperto Majuca and Joy Sinay.
Transformation – results © Libor Žídek. Economic growth in Czechoslovakia , and trend line.
Conduct of Monetary Policy: Goals and Targets
Monetary Transmission Mechanism: Case of Rwanda
IMPACT OF THE MONETARY INTEGRATION PROCESS UPON INFLATION IN THE CZECH REPUBLIC AND OTHER SELECTED COUNTRIES ACCEDING THE EUROZONE Economic and Monetary.
Accession to the Euro-Area: A Stylized Analysis Using a NK Model. * Bas van Aarle.
Sticky-information vs. Backward-looking index.: Inflation inertia in the U.S. by Julio A. Carrillo Maastricht University Econometric Society 2008 North.
Lecture 1: Intertemporal Trade in a Two-Period Model Tomáš Holub International Macroeconomics FSV UK, 16 February 2016.
Eiji Ogawa (Hitotsubashi University and EUIJ Tokyo)
Overview of Macroeconomics
Olga Kuznetsova National Research University
Chapter 1 Introduction.
Hysteresis and Fiscal Policy
Globalization and Enhanced Anti-Inflation Policy
Presentation transcript:

An Estimated Baseline Model of the Czech Open Economy Karel Musil CNB, MU Econometric Day 28th November 2008

2 Basic Aim explore dynamic behavior of the Czech economy and monetary policy implications with using of Dynamic Stochastic General Equilibrium model New Keynesian DSGE approach microec. foundations, optimizing behavior, rigidities, … New Open Economy Macroeconomics Czech economy Inflation targeting

3 Adjusted Two-Country Model (A2C) DSGE model of two economies 4 representative agents Original 2C model: Lubik, Schorfheide (2005) adjusted  preferences and technologies  size of modeled economies extended  tradable (TR) and non-tradable (NONTR) sectors  risk premium in UIP condition All parameters estimated (not calibrated)

4 A2C: Representative Household Maximization of utility function with respect to budget constraint First order conditions (FOC) intratemporal rate marginal of substitution between consumption and leisure Intertemporal Euler equation UIP condition with risk premium Rigidity in consumption Consumption bundle: 3 types of goods

5 A2C: Connection to Abroad Terms of trade Overall CPI inflation Law of one price gap Real exchange rate relative prices of tradable and non-tradable goods Balassa-Samuelson effect International financial market UIP condition international risk sharing condition

6 A2C: Representative Firms Monopolistic competition in TR and NONTR Production function with only labor and country specific technologies for TR and NONTR world long-run technological progress FOC for output decision marginal costs development for TR and NONTR sector FOC for price behavior price rigidity (Calvo) 3 NK Phillips Curves for domestic TR, NONTR, imports

7 A2C: Central Monetary Authority Taylor rule in inflation targeting regime Growth rule for output Modified Taylor rule change in nominal interest rate depends on  last period interest rate  deviation of inflation from inflation target  output gap  monetary policy shock

8 A2C: Market Clearing Condition Domestic output influenced by foreign output Equilibrium conditions NONTR sector TR sector: partly exported imported goods Domestic goods market equilibrium degree of openness of both economies share of non-tradable consumption relative prices of TR and NONTR, terms of trade

9 A2C: Foreign Economy Similar (or reversed) behavior of agents Differences only TR sector different size of foreign economy own technological shocks Agents households producers central bank Market clearing condition

10 A2C: System of Model Equations 43 equations and identities in 5 blocks domestic economy behavior connection between domestic and foreign economies foreign economy behavior identities for inflation and relative prices exogenous processes for development of domestic and foreign technologies 24 parameters for estimation 9 shocks

11 Solving and Estimation Linearized and stationarized system rewritten into Linear Rational Expectations form Transformed to state-space representation Bayesian approach using prior information Dynare and Iris

12 Data Czech economy and effective Euroarea Quarterly, from I. Q 1999 to II. Q 2008 Deviation of level from balanced level domestic and Euroarea real GDP domestic CPI (deviation from inflation target) level of prices in the domestic tradable sector level of imported prices non-annualized domestic nominal 3M interest rate nominal exchange rate CZK/EUR Euroarea CPI non-annualized nominal foreign 3M EONIA

13 Results: A2C Estimated Parameters degree of openness (share of imports to GDP) domestic economy 72% foreign economy 2% share of non-tradable consumption 52% relatively high persistence in consumption behavior almost unit elasticity in labor supply elasticity of substitution between domestic TR and NONTR 0.03 domestic TR and foreign TR (imports) 0.70 average duration of price contracts (in quarters) domestic TR 1.6, domestic NONTR 1.3, domestic imports 2.4 foreign TR 4.4, foreign imports 3.7

14 Results: A2C Estimated Parameters … continuing Modified Taylor rule domestic central bank foreign central bank persistence for specific country shock (and for both sectors in the domestic economy) 0.56 – 0.61 persistence for long-run world technology progress 0.61 relatively low standard deviation for monetary policy shock in domestic and foreign economy world technology progress

15 Results: Analysis of Behavior Domestic technology changes long-run effect on domestic output Influence on foreign output, but very small Monetary policy shock domestic: long-lasting impacts foreign: long-run destabilization of domestic economy Risk premium shock short lived impact World long-run technology changes only theoretical Rest shocks: common characteristics

16 Foreign Monetary Policy Shock IRFs

17 Conclusion NK DSGE model with NOEM approach A2C is tailored to the Czech condition Foreign sector is a “natural constraint“ Influence of domestic economy to abroad some synergic effects effect of a foreign sector “stabilizer“ Very small mutual interdependence Appropriate approximation of behavior of the Czech economy

18 Thanks for your attention.