An estimated dynamic stochastic general equilibrium model of the ...
An estimated dynamic stochastic general equilibrium model of the ...
An estimated dynamic stochastic general equilibrium model of the ...
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AbstractThis paper develops and estimates a <strong>dynamic</strong> <strong>stochastic</strong> <strong>general</strong> <strong>equilibrium</strong>(DSGE) <strong>model</strong> with sticky prices and wages for <strong>the</strong> euro area. The <strong>model</strong> incorporatesvarious o<strong>the</strong>r features such as habit formation, costs <strong>of</strong> adjustment in capital accumulationand variable capacity utilisation. It is <strong>estimated</strong> with Bayesian techniques using seven keymacro-economic variables: GDP, consumption, investment, prices, real wages,employment and <strong>the</strong> nominal interest rate. The introduction <strong>of</strong> ten orthogonal structuralshocks (including productivity, labour supply, investment, preference, cost-push andmonetary policy shocks) allows for an empirical investigation <strong>of</strong> <strong>the</strong> effects <strong>of</strong> such shocksand <strong>of</strong> <strong>the</strong>ir contribution to business cycle fluctuations in <strong>the</strong> euro area. Using <strong>the</strong><strong>estimated</strong> <strong>model</strong>, <strong>the</strong> paper also analyses <strong>the</strong> output (real interest rate) gap, defined as <strong>the</strong>difference between <strong>the</strong> actual and <strong>model</strong>-based potential output (real interest rate).Key words: DSGE <strong>model</strong>s; monetary policy; euro areaJEL-classification: E4-E5NBB WORKING PAPER No. 35 - October 2002 1
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