Output gap in the Czech economy: DSGE approach

Open access

Abstract

This paper presents three measures of the output gap estimated by a dynamic stochastic general equilibrium model of the Czech economy. We argue that the most plausible description of the business cycle provides the output gap defined as a deviation from a flexible price level of output, which is generated solely by permanent growth shocks. Our model shows that 2006-2008 overheating of the economy and the following 2008-2009 slump can be largely attributed to development in a world economy and export and import sectors, while the 2012-2013 recession was caused mainly by a combination of adverse domestic demand and cost shocks.

ADOLFSON, Malin, et al. Bayesian estimation of an open economy DSGE model with incomplete pass-through. Journal of International Economics, 2007, 72.2: 481-511.

ANDRLE, Michal, et al. Implementing the new structural model of the Czech National Bank. CNB Working Paper Series, 2/2009, 2009.

ANDRLE, Michal, et al. On the sources of business cycles: Implications for DSGE models. ECB Working Paper, No. 2058, 2017.

BAXTER, Marianne; KING, Robert G. Measuring business cycles: approximate band-pass filters for economic time series. Review of Economics and Statistics, 1999, 81.4: 575-593.

BENEŠ, Jaromír; N’DIAYE, Papa. A Multivariate Filter for Measuring Potential Output and the NAIRU: Application to The Czech Republic. IMF Working Paper 04/45, 2004.

BLANCHARD, Olivier; GALÍ, Jordi. Labor markets and monetary policy: A New Keynesian model with unemployment. American Economic Journal: Macroeconomics, 2010, 2.2: 1-30.

BROOKS, Stephen P.; GELMAN, Andrew. General methods for monitoring convergence of iterative simulations. Journal of Computational and Graphical Statistics, 1998, 7.4: 434-455.

CALVO, Guillermo A. Staggered prices in a utility-maximizing framework. Journal of Monetary Economics, 1983, 12.3: 383-398.

CHRISTIANO, Lawrence J.; EICHENBAUM, Martin; EVANS, Charles L. Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy, 2005, 113.1: 1-45. DOI: 10.1086/426038

EDGE, Rochelle M.; KILEY, Michael T.; LAFORTE, Jean-Philippe. Natural rate measures in an estimated DSGE model of the US economy. Journal of Economic Dynamics and control, 2008, 32.8: 2512-2535.

ELBOURNE, Adam; LUGINBUHL Rob; DE WIND, Joris. An estimated DSGE model for the Netherlands with unemployment. CPB Netherlands Bureau for Economic Policy Analysis, 2015.

FUEKI, Takuji, et al. Measuring Potential Growth with an Estimated DSGE Model of Japan’s Economy. International Journal of Central Banking, 2016, 12.1: 1-32.

HÁJKOVA, Dana; HURNÍK, Jaromír. Cobb-Douglas production function: the case of a converging economy. Czech Journal of Economics and Finance (Finance a úvěr), 2007, 57.9-10: 465-476.

HERBER, Pavel; NĚMEC, Daniel. Estimating output gap in the Czech Republic: DSGE approach. Mathematical Methods in Economics, 2009, 8: 117-124.

HIROSE, Yasuo; NAGANUMA, Saori. Structural estimation of the output gap: A Bayesian DSGE approach. Economic Inquiry, 2010, 48.4: 864-879.

HODRICK, Robert J.; PRESCOTT, Edward C. Postwar US business cycles: An Empirical investigation. Journal of Money, credit, and Banking, 1997, 1-16.

LUCAS Jr., Robert E. Econometric policy evaluation: A critique. In: Carnegie-Rochester conference series on public policy. North-Holland, 1976. p. 19-46.

MALOVANÁ, Simona. Foreign exchange interventions at the zero lower bound in the Czech economy: A DSGE approach. IES Working Paper 13, 2015.

MURÁRIK, Robert. Price Setting Behaviour in the Czech Republic, Micro Data Evidence. Statistika: Statistics and Economy Journal, 2011, 48.2: 24-41.

NEISS, Katharine S.; NELSON, Edward. The real-interest-rate gap as an inflation indicator. Macroeconomic Dynamics, 2003, 7.2: 239-262. DOI: 10.1017/S1365100502020011

PEDERSEN, Jesper; RAVN, Søren Hove. What drives the business cycle in a small open economy? Evidence from an estimated DSGE Model of the Danish economy. Danmarks Nationalbank Working Papers No. 88, 2013.

RYŠÁNEK, Jakub, et al. Monetary policy implications of financial frictions in the Czech Republic. Czech Journal of Economics & Finance, 2012, 62.5: 413-429.

SHEEN, Jeffrey; WANG, Ben Z. Assessing labor market frictions in a small open economy. Journal of Macroeconomics, 2016, 48: 231-251. DOI: 10.1016/j.jmacro.2016.02.006

SMETS, Frank; WOUTERS, Raf. Openness, imperfect exchange rate pass-through and monetary policy. Journal of Monetary Economics, 2002, 49.5: 947-981.

SMETS, Frank; WOUTERS, Raf. An estimated dynamic stochastic general equilibrium model of the Euro Area. Journal of the European Economic Association, 2003, 1.5: 1123-1175. DOI: 10.1162/154247603770383415

SMETS, Frank; WOUTERS, Rafael. Shocks and frictions in US business cycles: A Bayesian DSGE approach. American Economic Review, 2007, 97.3: 586-606.

VETLOV, Igor, et al. Potential output in DSGE models. European Central Bank Working Paper Series 1351, 2011.

Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

Journal Information


CiteScore 2018: 0.66

SCImago Journal Rank (SJR) 2018: 0.21
Source Normalized Impact per Paper (SNIP) 2018: 0.682

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 103 103 32
PDF Downloads 94 94 19