Analysis of Structural Differences and Asymmetry of Shocks using Posterior Distributions



Year of publication 2013
Type Article in Proceedings
Conference Proceedings of 31st International Conference Mathematical Methods in Economics
MU Faculty or unit

Faculty of Economics and Administration

Field Economy
Keywords DSGE model; Bayesian estimation; structural differences; asymmetry of shocks; posterior distributions
Description The goal of this paper is to examine asymmetry of shocks and structural differences between the Czech economy and the euro area. For this purpose I use New Keynesian DSGE model of two economies which I estimate on the data of the Czech economy and the euro area, using Bayesian techniques. The applied method examines differences in values of the parameters by comparison of their posterior distributions. Results suggest that the main differences are in volatility, persistence, and timing of macroeconomic shocks. There are also several structural differences. It seems that the ECB smooths less the interest rate and reacts more to the development in output and inflation than the CNB. It also seems that prices in the Czech economy are more sticky than prices in the euro area, especially in the non-tradable sector. Results also suggest that domestic households are less willing to smooth consumption over the time then their foreign counterparts.
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