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An Estimated DSGE Model for The German Economy

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  • Ernest Pytlarczyk

Abstract

This paper presents an estimated DSGE model for the European Monetary Union. Our approach, contrary to the previous studies, accounts for heterogeneity within the euro area. In the estimation we utilize disaggregated information, employing single country data, along with the aggregated EMU by Fagan et. al (2001). We also contribute to the literature by proposing a strategy for consistent estimation of the currency union model, using information available prior to the adoption of the single currency and afterwards. This approach requires the determination of two separate data generating processes - here these are theoretical DSGE models - corresponding to both current and historical monetary regimes. We emphasize the use of regime-switching models in the DSGE framework (in our case the threshold is known exactly and the switch is permanent). The approach is illustrated by developing a simple two-region DSGE model, with a particular focus on analyzing the German economy within EMU, and its Bayesian estimation on the sample 1980:q1- 2003:q4. Moreover, the paper offers: (i) a robustness check of the estimation results with respect to the alternative data approaches and various restrictions imposed on the model's structure (ii) assesments of the relative importance of various shocks and frictions for explaining the model dynamics (iii) an evaluation of the model's empirical properties

Suggested Citation

  • Ernest Pytlarczyk, 2005. "An Estimated DSGE Model for The German Economy," Computing in Economics and Finance 2005 318, Society for Computational Economics.
  • Handle: RePEc:sce:scecf5:318
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    File URL: http://gemini.econ.umd.edu/cgi-bin/conference/download.cgi?db_name=SCE2005&paper_id=318
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    Cited by:

    1. Moons, Cindy, 2009. "An Estimated Two-Country DSGE Model: losses from UK membership in EMU," Working Papers 2009/23, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    2. Funke, Michael & Paetz, Michael, 2010. "What can an open-economy DSGE model tell us about Hong Kong's housing market?," BOFIT Discussion Papers 19/2010, Bank of Finland, Institute for Economies in Transition.
    3. Funke, Michael & Paetz, Michael, 2013. "Housing prices and the business cycle: An empirical application to Hong Kong," Journal of Housing Economics, Elsevier, vol. 22(1), pages 62-76.
    4. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR;CES;MSH, vol. 30(81), pages 47-93.
    5. Karen Davtyan, 2016. "Interrelation among Economic Growth, Income Inequality, and Fiscal Performance: Evidence from Anglo-Saxon Countries," Hacienda Pública Española, IEF, vol. 217(2), pages 37-66, June.
    6. Gomes, S. & Jacquinot, P. & Pisani, M., 2012. "The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area," Economic Modelling, Elsevier, vol. 29(5), pages 1686-1714.
    7. Massimiliano Marcellino & Yuliya Rychalovska, 2014. "Forecasting with a DSGE Model of a Small Open Economy within the Monetary Union," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 33(5), pages 315-338, August.
    8. 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.
    9. Verstegen, Loes, 2017. "On fiscal and monetary integration in Europe," Other publications TiSEM 49f73a6c-d32d-4dff-b5ec-4, Tilburg University, School of Economics and Management.
    10. Carla Soares, 2008. "Impact on Welfare of Country Heterogeneity in a Currency Union," Working Papers w200814, Banco de Portugal, Economics and Research Department.
    11. Cindy Moons, 2013. "Losses from Membership in EMU: An Estimated Two-Country DSGE Model," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 59(1), pages 27-61.
    12. Carla Soares, 2008. "Heterogeneity in a Monetary Union and its Impact on Welfare," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    Bayesian econometrics; DSGE models; Euro area;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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