Publication details

PITFALLS OF DSGE MODEL APPROACH IN MONETARY UNION

Authors

KONÔPKOVÁ Zlatica

Year of publication 2020
Type Article in Periodical
Magazine / Source DANUBE: Law, Economics and Social Issues Review
MU Faculty or unit

Faculty of Economics and Administration

Citation
Web http://www.eaco.eu/danube-journal/archive/
Doi http://dx.doi.org/10.2478/danb-2019-0019
Keywords DSGE; Fiscal Policy; Small Economy; Union
Attached files
Description This paper investigates the impact of country size on the DSEG model estimation of the monetary union. Following DSGE model for fiscal policy simulations (FiMod) the union is considered to have a two-country structure, the investigated country has weight in union equal to its population share and the second country represents the rest of members. The model is estimated for different country sizes and it is found there are two areas of equilibrium instability which covers 11 of 19 European Monetary Union members. The result is in contrary with Stähler and Thomas (2012) who estimated FiMod for Spain and stated that model can be recalibrated to every member of the monetary union. According to the result the size of country matters and affects the stability of equilibrium. Therefore, special attention is paid to small economies in monetary union. The results and consequences are then discussed with examples from recent history
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