An estimated two-country DSGE model of Austria and the Euro Area |
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| Authors: | Fritz Breuss Katrin Rabitsch |
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| Affiliation: | (1) Research Institute for European Affairs, Department of Economics, Vienna University of Economics and Business Administration, Althanstrasse 39-45, A-1090 Vienna, Austria;(2) WIFO, Vienna, Austria;(3) Department of Economics, Central European University, Nádor utca 9, H-1051 Budapest, Hungary;(4) Research Division, Magyar Nemzeti Bank, Szabadság tér 8–9, H-1054 Budapest, Hungary |
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| Abstract: | We present a two-country New Open Economy Macro model of the Austrian economy within the European Union’s Economic & Monetary Union (EMU). The model includes both nominal and real frictions that have proven to be important in matching business cycle facts, and that allow for an investigation of the effects and cross-country transmission of a number of structural shocks: shocks to technologies, shocks to preferences, cost-push type shocks and policy shocks. The model is estimated using Bayesian methods on quarterly data covering the period of 1976:Q2–2005:Q1. In addition to the assessment of the relative importance of various shocks, the model also allows to investigate effects of the monetary regime switch with the final stage of the EMU and investigates in how far this has altered macroeconomic transmission. We find that Austria’s economy appears to react stronger to demand shocks, while in the rest of the Euro Area supply shocks have a stronger impact. Comparing the estimations on pre-EMU and EMU subsamples we find that the contribution of (rest of the) Euro Area shocks to Austria’s business cycle fluctuations has increased significantly. |
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| Keywords: | European Monetary Union DSGE modeling Bayesian estimation |
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