Aino 2: An updated DSGE model of the Finnish economy

We document the current specification of Aino 2, the dynamic stochastic general equilibrium (DSGE) model used at the Bank of Finland for forecasting and policy analysis, originally introduced under the name Aino 2.0 in Kilponen et al. (2016). It is a large-scale estimated New Keynesian small open economy model with an explicit banking sector, designed to capture key features of the Finnish macroeconomy. Since its introduction, the model has been updated to include various features with a view of improving its performance in practical policy work. The most important modifications include the adoption of general constant relative risk aversion preferences, a revised wage-indexation mechanism that generates more realistic wage dynamics in forecasting applications, and fixed production costs that improve the model's ability to match labour market and productivity fluctuations. A companion Technical Appendix provides the derivation of full equilibrium conditions, analytical steady state solution, and log-linearised dynamic equilibrium conditions.