Description
The applicant is interested in empirical macroeconomics, especially DSGE modelling (Dynamic Stochastic General Equilibrium models). These models are widely used for monetary policy analysis in many economies. Recently, applicant focus on importance and effects of financial frictions (which are incorporated in DSGE models) for the behaviour of macroeconomic variables such as consumption, output, and inflation. One form of financial friction is collateral constraint on loans that are secured by houses. Fluctuations in house prices thus can have an impact on the financial position of households and their consumption, and consequently for the whole macroeconomy.
Summary of project results
In accordance with the project plan, the small open economy DSGE model with housing sector and collateral constraint was derived. The model was successfully estimated on the data of the Czech economy, but the data fit of the model was relatively poor. Nevertheless, the simulations with occasionally binding constrain were performed. The model was able to replicate the asymmetrical relationship between house prices and consumption, but the quantitative effect on consumption was very small. Also the effect of the zero lower bound on interest rate appeared as insignificant. Outcome of this activity is working paper available on the website. Part of the activities were devoted to studying of the effect of the zero lower bound on the size of fiscal multipliers in different model environment. This brought interesting results and a scientific article is already prepared for submitting for publication.
Summary of bilateral results
Increased skills/competences of staff