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An Estimated DSGE Model of Austria, the Euro Area and the U.S.: Some Welfare Implications of EMU

Author

Listed:
  • Fritz Breuss
  • Jorge A. Fornero

Abstract

We build a fully micro-founded dynamic general equilibrium (DSGE) model, which is estimated employing Bayesian methods. The model captures the most salient features of Austria as a small open economy, the Euro Area (EA) and the United States (U.S.). Further analysis is conducted through numerical simulations to examine how nominal and real shocks are propagated. Besides, welfare costs of nominal rigidities are calculated. We distinguish two sample periods, ‘pre-EMU’ and ‘EMU’. In the former, we maintain the assumption of full commitment of respective (independent) Central Banks towards their monetary rules, whereas in the latter, the monetary policy of Austria is fully aligned with the European Central Bank. Main results are derived from Bayesian estimation and simulation of the estimated model. Welfare calculations from the estimated model suggest that in the pre-EMU period, the EA and Austria present welfare costs close to one percent of steady-state consumption, whereas the U.S. welfare costs is slightly higher (-1.52 percent). As it would be expected, in the second subsample, welfare costs in the EA decrease, indicating an improvement in the allocation during the EMU regime (similarly in the U.S.), whereas in Austria welfare costs go up.

Suggested Citation

  • Fritz Breuss & Jorge A. Fornero, 2009. "An Estimated DSGE Model of Austria, the Euro Area and the U.S.: Some Welfare Implications of EMU," FIW Working Paper series 034, FIW.
  • Handle: RePEc:wsr:wpaper:y:2009:i:034
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    Citations

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    Cited by:

    1. Fritz Breuss, 2016. "The Crisis Management of the ECB," WIFO Working Papers 507, WIFO.
    2. Massimiliano Marcellino & Yuliya Rychalovska, 2012. "An estimated DSGE model of a Small Open Economy within the Monetary Union: Forecasting and Structural Analysis," RSCAS Working Papers 2012/34, European University Institute.
    3. 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.
    4. repec:spr:jbuscr:v:14:y:2018:i:1:d:10.1007_s41549-018-0025-1 is not listed on IDEAS
    5. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.
    6. Fritz Breuss, 2016. "Would DSGE Models have Predicted the Great Recession in Austria?," WIFO Working Papers 530, WIFO.
    7. Marianna Cervená & Martin Schneider, 2010. "Short-term forecasting GDP with a DSGE model augmented by monthly indicators," Working Papers 163, Oesterreichische Nationalbank (Austrian Central Bank).
    8. Christian Beer, 2011. "Literature Review on the Economic Effects of the Euro on Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 22-34.
    9. Gerhard Fenz & Lukas Reiss & Martin Schneider, 2012. "A structural interpretation of the impact of the great recession on the Austrian economy using an estimated DSGE model," Working Papers 177, Oesterreichische Nationalbank (Austrian Central Bank).

    More about this item

    Keywords

    Monetary Policy; NOEM; DSGE models; Austria; EURO area; U.S.;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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