Analysis of Structural Differences and Asymmetry of Shocks Between the Czech Economy and the Euro Area

Abstract

The goal of this paper is to examine asymmetry of shocks and structural differences between the Czech economy and the euro area. For this purpose I use a New Keynesian DSGE model of two economies. Structural differences are examined using the posterior distributions of structural parameters. Results suggest that prices are more sticky in the Czech economy, especially in the non-tradable sector, while wages are more sticky in the euro area. It seems that the ECB smooths less the interest rate and reacts more to the development in output and inflation than the Czech National Bank. It also seems that labor supply in the Czech economy is more elastic than labor supply in the euro area. Asymmetry of shocks is examined using correlations between smoothed shocks obtained from the estimation. The most asymmetric shocks are shocks in government expenditures, labor supply shocks, and productivity shocks in the tradable sector, while the most symmetric shocks are consumption preference shocks, monetary policy shocks, and investment efficiency shocks.

Keywords

• DSGE model
• Bayesian estimation
• structural differences
• asymmetry of shocks
• posterior distribution