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An estimated DSGE model of the Hungarian economy

  • Zoltán M. Jakab

    ()

    (Magyar Nemzeti Bank)

  • Balázs Világi

    ()

    (Magyar Nemzeti Bank)

This paper presents and estimates a dynamic stochastic general equilibrium (DSGE) small-open-economy model for the Hungarian economy. The model features different types of frictions, real and nominal rigidities which are necessary to replicate the empirical persistence of Hungarian data. Bayesian methods are applied, and the structural break due to changing monetary regime over the studied period is explicitly taken into account in the estimation procedure. A real-time adaptive learning mechanism describes agents’ perception on underlying inflation. This creates an additional inertia in inflation. We describe the properties of the estimated model by impulse-response analysis, variance decomposition and the analysis of identified structural shocks. Our results are compared with that of estimated euro-area DSGE models, and estimated non-DSGE models of the Hungarian economy. As a robustness check, a model without real time adaptive learning is also estimated and it’s results are also compared to those of the original model.

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File URL: http://english.mnb.hu/Root/Dokumentumtar/MNB/Kiadvanyok/mnbhu_mnbfuzetek/mnbhu_wp2008_9/wp_2008_9.pdf
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Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2008/9.

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Length: 85 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mnb:wpaper:2008/9
Contact details of provider: Web page: http://www.mnb.hu/

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  1. Jordi Gali, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations," NBER Working Papers 5721, National Bureau of Economic Research, Inc.
  2. Jordi Galí & J. David López-Salido & Javier Vallés, 2002. "Understanding the effects of government spending on consumption," Economics Working Papers 911, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2005.
  3. Hidi, János, 2006. "A magyar monetáris politikai reakciófüggvény becslése
    [Estimating the reaction function for Hungarian monetary policy]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1178-1199.
  4. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
  5. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
  6. Szilárd Benk & Zoltán M. Jakab & Gábor Vadas, 2005. "Potential Output Estimations for Hungary: A Survey of Different Approaches," MNB Occasional Papers 2005/43, Magyar Nemzeti Bank (the central bank of Hungary).
  7. John Geweke, 1998. "Using simulation methods for Bayesian econometric models: inference, development, and communication," Staff Report 249, Federal Reserve Bank of Minneapolis.
  8. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.
  9. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Closing Small Open Economy Models," Departmental Working Papers 200115, Rutgers University, Department of Economics.
  10. Szilárd Benk & Zoltán M. Jakab & Mihály András Kovács & Balázs Párkányi & Zoltán Reppa & Gábor Vadas, 2006. "The Hungarian Quarterly Projection Model (NEM)," MNB Occasional Papers 2006/60, Magyar Nemzeti Bank (the central bank of Hungary).
  11. Zoltán M. Jakab & Viktor Várpalotai & Balázs Vonnák, 2006. "How does monetary policy affect aggregate demand? A multimodel approach for Hungary," MNB Working Papers 2006/4, Magyar Nemzeti Bank (the central bank of Hungary).
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