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The Great Recession in the Non-EMU Visegrád Countries: A Nonlinear DSGE Model with Time-Varying Parameters

Author

Listed:
  • Stanislav Tvrz

    () (National Bank of Slovakia
    Faculty of Economics and Administration, Masaryk University, Brno)

  • Osvald Vasicek

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

Abstract

Inspired by the radically different course and aftermath of the Great Recession in the Polish economy and the economies of the Czech Republic and Hungary in contrast to their comparable economic development before the crisis, we investigate the structural stability of these three Central European economies in that period. The question of structural stability is essential for proper application of a standard DSGE model in a given economy. In the case of significant structural changes, these should be incorporated explicitly into the model structure in order to avoid misleading results. Each of the three economies is represented by a nonlinear small open economy dynamic stochastic general equilibrium model with a financial accelerator. First, the DSGE models are estimated using Bayesian methods under the assumption of constant structural parameters. Then the development of time-varying structural parameters is estimated by means of a particle filter using second order approximation of a nonlinear DSGE model. We find several statistically significant structural changes in the Czech and Polish economies. According to the time-varying impulse response functions, the structural changes during the Great Recession curbed the negative impacts of the adverse exogenous shocks to a certain extent in the Czech and Polish economies. By contrast, the vulnerability of the Hungarian economy further increased.

Suggested Citation

  • Stanislav Tvrz & Osvald Vasicek, 2016. "The Great Recession in the Non-EMU Visegrád Countries: A Nonlinear DSGE Model with Time-Varying Parameters," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(3), pages 207-235, June.
    • Handle: RePEc:fau:fauart:v:66:y:2016:i:3:p:207-235
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    File URL: http://journal.fsv.cuni.cz/storage/1355_tvrz.pdf
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    References listed on IDEAS

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    1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    2. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2011. "Introducing financial frictions and unemployment into a small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 1999-2041.
    3. Michał Brzoza‐Brzezina & Marcin Kolasa, 2013. "Bayesian Evaluation of DSGE Models with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(8), pages 1451-1476, December.
    4. Jakub Rysanek & Jaromir Tonner & Stanislav Tvrz & Osvald Vasicek, 2012. "Monetary Policy Implications of Financial Frictions in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(5), pages 413-429, November.
    5. Jaromir Tonner & Jiri Polansky & Osvald Vašíèek, 2011. "Parameter Drifting in a DSGE Model Estimated on Czech Data," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(5), pages 510-524, November.
    6. Brzoza-Brzezina, Michał & Kolasa, Marcin & Makarski, Krzysztof, 2013. "The anatomy of standard DSGE models with financial frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 32-51.
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    Cited by:

    1. Georgiadis, Georgios & Jancokova, Martina, 2017. "Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks," Globalization Institute Working Papers 314, Federal Reserve Bank of Dallas.

    More about this item

    Keywords

    DSGE model; Great Recession; time-varying parameters; particle filter; financial frictions;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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