An Estimated DSGE Model of the Hungarian Economy Zoltn M' Jakab and Balzs Vilgi Vilnius 1011 May 200 - PowerPoint PPT Presentation

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An Estimated DSGE Model of the Hungarian Economy Zoltn M' Jakab and Balzs Vilgi Vilnius 1011 May 200

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Usually DSGE models focus on cyclical behaviour of variables ... Future research. Labour/import adjustment costs. Separate export sector. export Phillips curve ... – PowerPoint PPT presentation

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Title: An Estimated DSGE Model of the Hungarian Economy Zoltn M' Jakab and Balzs Vilgi Vilnius 1011 May 200


1
An Estimated DSGE Model of the Hungarian Economy
Zoltán M. Jakab and Balázs VilágiVilnius10-11
May 2007
2
Motivation
  • The potential role of DSGE models in the MNB
  • Identifying structural shocks
  • Welfare policy analysis
  • Forecasting with DSGE-VAR in the future

3
Special features of this paper 1
  • Usually DSGE models focus on cyclical behaviour
    of variables
  • Here we take into account diverging trends of
    nom. exchange rate and inflation
  • It is shown that the LR behaviour of this
    variables has significant impact on the cyclical
    behaviour of both nominal and real variables

4
Special features of this paper 2
  • Two monetary regimes in Hungary
  • crawling peg, IT
  • Structural break explicitly taken into account in
    our estimation

5
Main results 1
  • Estimated Calvo parameters comparable to euro
    area estimates, degree of wage indexation
    different
  • Interest rate smoothing lower than euro area
    estimates
  • estimated IRFs qualitatively similar to other New
    Keynesian models

6
Main results 2
  • estimated price responses comparable to other
    estimated non-DSGE models of MNB, real variables
    more responsive
  • Variance decomposition shows large role of
    permanent real exchange rate shocks

7
Structure of the model
  • Main frictions
  • External habit formation
  • Rule-of-thumb consumers
  • Calvo price/wage setting with indexation
  • Adjustment cost of investments and capacity
    utilization
  • Fixed costs in production
  • Open economy features
  • ad hoc exports equation
  • imports as intermediate goods

8
Log-linearized model AS block
  • firms price indexation
  • price Phillips curve
  • cyclical component of inflation
  • perceived average inflation

9
Log-linearized model AS block
  • wage Phillips curve
  • Input demands

10
Log-linearized model AD block
  • Consumption of optimizers
  • Consumption of non-optimizers
  • Aggregate consumption
  • Exports

11
Log-linearized model AD block
  • Arbitrage equation
  • Investment equation
  • Capital accumulation

12
Log-linearized model CA/Policy
  • Current account
  • UIP
  • REER
  • Monetary policy / crawling-peg
  • Monetary policy / IT

13
Estimation
  • Fixed parameters
  • g1/6, ?13
  • Bayesian estimation on Hungarian data 951-061
  • Two monetary regimes different Phillips curve
    coefficients

14
Estimation results
  • Calvo prices
  • crawl 0.881
  • IT 0.900
  • SW 0.905
  • Indexation prices
  • crawl 0.732
  • IT 0.480
  • SW 0.477

15
Estimation results
  • Calvo wages
  • crawl 0.795
  • IT 0.638
  • SW 0.742
  • Indexation wages
  • crawl 0.171
  • IT 0.220
  • SW 0.728
  • Interest rate smoothing
  • IT 0.615
  • SW 0.956

16
Variance decomposition
  • Inflation
  • Short run price markup shock (91)
  • Long run permanent real exchange rate (68)
  • Consumption
  • Short run preference (82)
  • Long run permanent real exchange rate (37)
  • Investments
  • both in short and long run its own shock

17
Variance decomposition
  • Exports
  • Short run export demand shock (79)
  • Long run real exchange rate export demand
    (30-30)
  • Imports
  • Short run productivity (72)
  • Long run real exchange rate productivity
    (23-23)
  • Cyclical real exchange rate
  • Short run financial premium (63)
  • Long run permanent reer (40)
  • Interest rate
  • Short run policy shock (40)
  • Long run permanent real exchange rate (73) and
    policy shock only 4

18
Impulse response analysis
19
Impulse response analysis
20
Impulse response analysis
21
Future research
  • Labour/import adjustment costs
  • Separate export sector
  • export Phillips curve
  • with different import-intensity
  • Core inflation explained by model
  • Regulated prices as an exogenous process
  • Utilization of capital stock observations in
    estimations
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