AN ESTIMATED DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODEL OF THE EURO AREA

This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area. The model incorporates various other features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. It is estimate...

Full description

Saved in:
Bibliographic Details
Published in:Journal of the European Economic Association 2003-09, Vol.1 (5), p.1123-1175
Main Authors: Smets, Frank, Wouters, Raf
Format: Article
Language:English
Subjects:
25th International Seminar on Macroeconomics
Aggregate supply shocks
Cost push inflation
Economic models
Euro Zone
Inflation rates
Inflation shocks
Modeling
Monetary policy
Price shocks
Supply shocks
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area. The model incorporates various other features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. It is estimated with Bayesian techniques using seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. The introduction of ten orthogonal structural shocks (including productivity, labor supply, investment, preference, cost-push, and monetary policy shocks) allows for an empirical investigation of the effects of such shocks and of their contribution to business cycle fluctuations in the euro area. Using the estimated model, we also analyze the output (real interest rate) gap, defined as the difference between the actual and model-based potential output (real interest rate).
ISSN:1542-4766
1542-4774
DOI:10.1162/154247603770383415