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The banking and distribution sectors in a small open economy DSGE Model

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  • Szabolcs Deák
  • Lionel Fontagné
  • Marco Maffezzoli
  • Massimiliano Marcellino

Abstract

The recent crisis has emphasized the role of financial - macroeconomic interactions, and international trade in goods and services, in the transmission of the shocks. Both phenomena, closely related to the higher degree of globalization, are very relevant for small open economies, and particularly so when a large share of the economy relies on financial and distribution services. Hence, in this paper we propose to incorporate the banking and distribution sectors into a medium scale DSGE model of a small open economy. As an illustration, the resulting model is then calibrated to match the specific characteristics of the Luxembourg economy, where the financial sector plays a key role. We believe that the results are also of more general interest for studying the reaction of small open economies to real and financial shocks.

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Bibliographic Info

Paper provided by European University Institute in its series RSCAS Working Papers with number 2012/53.

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Date of creation: 12 Sep 2012
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Handle: RePEc:rsc:rsceui:2012/53

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Cited by:
  1. Massimiliano Marcellino & Yuliya Rychalovska, 2012. "An estimated DSGE model of a Small Open Economy within the Monetary Union: Forecasting and Structural Analysis," RSCAS Working Papers 2012/34, European University Institute.

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