Estimating an Open Economy SDGE Model for the Euro Area
In this paper we estimate a Bayesian SDGE model using the computer program "Dynare" by Michel Juillard. We present an estimated open economy version of a model for the Euro area. This is an extension of the SDGE model by Smets and Wouters (2003). Based on input/output tables we present a number of sub-versions of a structural core model which are partly calibrated and partly estimated. The core model has various sectors and the parameters which characterize the different sectors vary across the different sub-versions of the model. The alternative parameterizations reflect the most common open economy features such as modelling tradables versus non-tradables or the empirical importance of modelling imported energy as input factors. This comparative exercise might help us to judge the relative empirical relevance of these concepts. Moreover, we are able to judge the empirical importance of different mechanisms to describe the pass-through of foreign prices such as imperfect competition, adjustment costs and pricing to market.
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