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An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area

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Author Info
Frank Smets (European Central Bank and CEPR)
Raf Wouters (National Bank of Belgium)

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Abstract

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 vari-ables: 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). (JEL: E4, E5) Copyright (c) 2003 The European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 1 (2003)
Issue (Month): 5 (09)
Pages: 1123-1175
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Handle: RePEc:tpr:jeurec:v:1:y:2003:i:5:p:1123-1175

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Butzen, Paul & Fuss, Catherine & Vermeulen, Philip, 2001. "The interest rate and credit channels in Belgium: An investigation with micro-level firm data," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-1, International Conferences on Panel Data. [Downloadable!]
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  2. Luc Aucremanne & Guy Brys & Mia Hubert & Peter J. Rousseeuw & Anja Struyf, 2002. "Inflation, relative prices and nominal rigidities," Research series 200205-1, National Bank of Belgium. [Downloadable!]
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  3. Stephen J. Turnovsky, 2000. "Growth in an open economy: some recent developments," Research series 200005-1, National Bank of Belgium. [Downloadable!]
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  4. Philippe Jeanfils, 2000. "A model with explicit expectations for Belgium," Research series 200003-3, National Bank of Belgium. [Downloadable!]
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  5. Paul Masson, 2000. "Fiscal policy and growth in the context of European integration," Research series 200005-3, National Bank of Belgium. [Downloadable!]
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  6. Patrick Bisciari, 2001. "Nouvelle économie," Documents series 200104, National Bank of Belgium. [Downloadable!]
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  7. Danny Cassimon & Peter-Jan Engelen & Hilde Meersman & Martine Van Wouwe, 2002. "Investment, uncertainty and irreversibility: evidence from belgian accounting data," Research series 200205-4, National Bank of Belgium. [Downloadable!]
  8. Charles Wyplosz, 2000. "Economic growth and the labor markets: Europe's challenge," Research series 200005-4, National Bank of Belgium. [Downloadable!]
  9. Julian Franks & Colin Mayer, 2002. "Governance as a source of managerial discipline," Research series 200205-12, National Bank of Belgium. [Downloadable!]
  10. Ronald MacDonald, 2000. "The role of the exchange rate in economic growth: a euro-zone perspective," Research series 200005-5, National Bank of Belgium. [Downloadable!]
  11. Alain Nyssens & Paul Butzen & Patrick Bisciari, 2000. "Performances économiques des Etats-Unis dans les années nonante," Documents series 200003-3, National Bank of Belgium. [Downloadable!]
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  12. Michele Cincera, 2002. "Financing constraints, fixed capital and R&D investment decisions of belgian firms," Research series 200205-13, National Bank of Belgium. [Downloadable!]
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  13. Frank Smets & Rafael Wouters, 2002. "Openness: imperfect exchange rate pass-through and monetary policy," Working Paper Series 128, European Central Bank. [Downloadable!]
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  14. Philippe Jeanfils, 2001. "A guided tour of the world of rational expectations models and optimal policies," Research series 2001-06, National Bank of Belgium. [Downloadable!]
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  15. Paul Butzen & Catherine Fuss & Philip Vermeulen, 2002. "The impact of uncertainty on investment plans," Research series 200205-5, National Bank of Belgium. [Downloadable!]
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