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Does the Foreign Income Shock in a Small Open Economy DSGE Model Fit Croatian Data?

Author

Listed:
  • Vladimir Arčabić

    (Faculty of Economics and Business, University of Zagreb)

  • Tomislav Globan

    (Faculty of Economics and Business, University of Zagreb)

  • Ozana Nadoveza

    (Faculty of Economics and Business, University of Zagreb)

  • Lucija Rogić Dumančić

    (Faculty of Economics and Business, University of Zagreb)

  • Josip Tica

    (Faculty of Economics and Business, University of Zagreb)

Abstract

The paper compares theoretical impulse response functions from a DSGE model for a small open economy with an empirical VAR model estimated for the Croatian economy. The theoretical model fits the data well as long as monetary policy is modelled as a fixed exchange rate regime. The paper considers only a foreign output gap shock. A positive foreign shock increases domestic GDP and prices and decreases terms of trade, which is in compliance with theoretical assumptions. Interest rates behave differently than suggested by the estimated DSGE model, which could be explained with an unconventional interest rate transmission channel in Croatia.

Suggested Citation

  • Vladimir Arčabić & Tomislav Globan & Ozana Nadoveza & Lucija Rogić Dumančić & Josip Tica, 2016. "Does the Foreign Income Shock in a Small Open Economy DSGE Model Fit Croatian Data?," EFZG Working Papers Series 1607, Faculty of Economics and Business, University of Zagreb.
    • Handle: RePEc:zag:wpaper:1607
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    File URL: http://web.efzg.hr/repec/pdf/Clanak%2016-07.pdf
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    Cited by:

    1. Patrik Barišić & Tibor Kovač & Vladimir Arčabić, 2022. "Identifying aggregate supply and demand shocks in small open economies," EFZG Working Papers Series 2202, Faculty of Economics and Business, University of Zagreb.

    More about this item

    Keywords

    DSGE; foreign income shocks; exchange rate; Croatia; gross domestic product; Eurozone;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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