Investigating structural differences of the Czech economy: Does asymmetry of shocks matter?



Year of publication 2012
Type Article in Periodical
Magazine / Source Bulletin of the Czech Econometric Society
MU Faculty or unit

Faculty of Economics and Administration

Field Economy
Keywords Two-country DSGE model; Bayesian estimation; Structural heterogeneity; Asymmetric shocks
Description The goal of this paper is to evaluate heterogeneity between the Czech Republic and the Euro area, because different behavior of agents or asymmetric shocks cut benefits from the entering monetary union. For this purpose, we introduce a two-country dynamic stochastic general equilibrium model that allows different sources of heterogeneity between countries. We focus on differences in structural parameters and asymmetry of shocks hitting the two economies. Using Bayesian techniques, we estimate various specifications of log-linear models (unrestricted and nested) and then we test different sources of heterogeneity. Our results indicate that the main sources of heterogeneity are price and wage rigidities and the asymmetry of shocks. On the other hand, we have found strong evidence in favor of homogeneity in parameters describing utility function of households.
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