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Stock market wealth effects in an estimated DSGE model for Hong Kong

  • Michael Funke

    ()

  • Michael Paetz

    ()

  • Ernest Pytlarczyk

    ()

This paper develops and estimates an open-economy dynamic stochastic general equilibrium (DSGE) model of the Hong Kong economy. The model features short-run price rigidities generated by monopolistic competition and staggered reoptimization. We devote special attention to asset prices and wealth effects, which we believe to be important. For this reason we adopt a perpetual-youth approach. Model parameters and unobserved components are estimated with a Bayesian maximum likelihood procedure, conditional on prior information concerning the values of parameters. The estimations identify substantial wealth effects and indicate that the nominal interest rate responds to unexpected movements in stock prices.

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File URL: http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/MFMPPytl.pdf
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Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 21009.

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Date of creation: Sep 2010
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Handle: RePEc:ham:qmwops:21009
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