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Business Cycle Synchronization through the Lens of a DSGE Model

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  • Martin SLANICAY

    (Faculty of Economics and Administration, Masaryk University, Brno)

Abstract

The goal of this paper is to examine business cycle synchronization between the Czech economy and the euro area via a fully specified DSGE model. Using a two-country DSGE model I decompose the observed variables into the contributions of structural shocks and then compute conditional correlations. I also examine how these correlations evolve over time. The results indicate that productivity shocks in the tradable sector are the driving forces of different business cycle behavior, while investment efficiency shocks contribute to symmetric behavior of the two economies. The impact of shocks is most symmetric in the case of investment, output, and interest rates; the impact of shocks on these variables is highly correlated. There seems to be convergence of business cycles in the case of consumption, investment, and output, as the overall impact of shocks on these variables is getting more and more symmetric over time.

Suggested Citation

  • Martin SLANICAY, 2013. "Business Cycle Synchronization through the Lens of a DSGE Model," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(2), pages 180-196, May.
  • Handle: RePEc:fau:fauart:v:63:y:2013:i:2:p:180-196
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    References listed on IDEAS

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    1. Kolasa, Marcin, 2009. "Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model," Economic Modelling, Elsevier, vol. 26(6), pages 1245-1269, November.
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    5. Fidrmuc, Jarko & Korhonen, Iikka, 2006. "Meta-analysis of the business cycle correlation between the euro area and the CEECs," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 518-537, September.
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    7. Jakob De Haan & Robert Inklaar & Richard Jong‐A‐Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
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    Cited by:

    1. Georgiadis, Georgios & Jančoková, Martina, 2020. "Financial globalisation, monetary policy spillovers and macro-modelling: Tales from 1001 shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    2. Hloušek Miroslav, 2016. "Inflation Target and its Impact on Macroeconomy in the Zero Lower Bound Environment: the case of the Czech economy," Review of Economic Perspectives, Sciendo, vol. 16(1), pages 3-16, March.
    3. RNuket Kirci Cevik & Sel Dibooglu & Ali M. Kutan, 2016. "Real and Financial Sector Studies in Central and Eastern Europe: A Review," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 2-31, February.

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    More about this item

    Keywords

    DSGE model; Bayesian estimation; shock decomposition; business cycle synchronization;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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