Nominal rigidities and wage-price dynamics in estimated DSGE model: application for the Czech economy


HLOUŠEK Miroslav TOMEŠ Zdeněk ŽÍDEK Libor

Year of publication 2008
Type Chapter of a book
MU Faculty or unit

Faculty of Economics and Administration

Description The goal of this paper is to examine importance of nominal rigidities, especially of wages and prices, in the Czech economy. As a tool, DSGE model of open economy with nominal rigidities is used. The model is estimated on data of the Czech economy using Bayesian techniques. The model is evaluated in terms how it fits the data and the dynamical properties of the model are studied. The emphasis is put on wage-price dynamics. Next, the relative importance of nominal rigidities is examined using sensitivity analysis. The conclusion is that wages are more rigid than prices and thus wage rigidity and price rigidity are interchangeable. This outcome should be taken into consideration for forming of monetary policy by the central bank and modelling of behaviour of the Czech economy.
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