Publication details

Behavior of the Czech small open economy in the conditions of occasionally binding constraints


TVRZ Stanislav TONNER Jaromír VAŠÍČEK Osvald

Year of publication 2018
Type Article in Proceedings
Conference 36th International Conference Mathematical Methods in Economics Conference Proceedings
MU Faculty or unit

Faculty of Economics and Administration

Keywords DSGE model;simulation;non-standard monetary policy;occasionallybinding constraints
Description The period of economic recovery after the Great Recession was marked by utilization of non-standard monetary policy tools, such as quantitative easing or exchange rate interventions, by the central banks around the globe. In this paper we model the behavior of the Czech small open economy in the conditions of nonstandard monetary policy with the use of DSGE model with occasionally binding constraints. We compare the baseline model to the alternative set-up, where the development of domestic and foreign policy interest rates and nominal exchange rate is restricted to given bounds. We investigate the behavior of model economy using the impulse response functions under the assumption that the limiting bounds are fully anticipated by the rational economic agents. We show that the effects of given constraints largely depend on the type of particular exogenous shock. While responses to some may remain unaffected, the rest gets to a certain extent amplified or dampened.
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