Publication details
A Small Open Economy Model of the Czech Republic with Frictional Labor Market
| Authors | |
|---|---|
| Year of publication | 2015 |
| Type | Article in Proceedings |
| Conference | Proceedings of 18th International Conference Enterprise and Competitive Environment |
| MU Faculty or unit | |
| Citation | |
| Web | Conference proceedings |
| Field | Economy |
| Keywords | small open economy; labor market; frictions; DSGE model; search and matching |
| Description | The goal of this paper is to identify and quantify the interactions among monetary policy, business cycle and labor market variables for the Czech Republic during the last 15 years. A dynamic stochastic general equilibrium model is used to investigate the characteristics of the Czech economy before and after the financial crisis in 2008. This small open economy model contains Taylor-type monetary rule, price and wage rigidities, and search and matching frictions. The wages setting mechanism and hours worked are the result of the Nash bargaining process. Model parameters are estimated using the quarterly data of the Czech Republic for the period 1999:Q1 – 2014:Q3. The model is able to match the business cycle properties of key economic variables relatively well. The results show that the reactions of variables to monetary shock are quite similar in both examined periods providing a clear path of the transmission mechanism. The wage rigidities are considerably higher after the crisis. Surprisingly, the estimated bargaining power of firms is relatively low throughout the whole time span. On the other hand, hiring an additional employee is rather costly. |
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