engleski

Testing market structure assumptions for DSGE modelling in Croatia using SVAR model with long run restrictions

The market structure assumptions are among crucial assumptions in formulation of dynamic stohastic general equilibrium (DSGE) models. The inclusion of imperfect competition assumption in DSGE models has questioned the money neutrality which is the characteristic of DSGE models with perfect competition, and thus opened the space for monetary policy analysis. Therefore, modelling of the market structure is very important issue in formulating DSGE models. One of the criteria which serve to determine which DSGE models are better suited to the characteristics of the observed empirical economy is the impact of technology shock. In DSGE models with the assumption of perfect competition where price rigidity is not present, i.e. real business cycle models, changes in productivity that are driven by technology shocks increase the hours of work. On the other hand, new Keynesian DSGE models with the assumption of imperfect competition and price rigidities, suggest that technological shocks affect the decrease of working hours, since the firms cannot adjust to the excess production by reducing the prices. In order to assess the impact of technology shocks in Croatia, the SVAR model with long run restrictions is estimated using data on productivity, working hours, consumption and investment in Croatia. The estimated impact of technology shock on employment is negative, while the estimated impact on consumption and investment is positive. The conducted analysis points to the fact that model with imperfect competition and price rigidities describes the empirical characteristics of Croatian economy better that the model with perfect competition. This implies that, regarding the market structure assumption, new Keynesian models are better suited to Croatian economy in relation to real business cycle models.

DSGE model; Long run restrictions; Market structure; SVAR model

Ovaj rad je podržan od strane Hrvatske zaklade za znanost kao dio znanstvenog projekta „Statistical Modelling for Response to Crisis and Economic Growth in Western Balkan Countries“ (STRENGTHS) ; Broj projekta: 9402 ; Projektno razdoblje: 2014.-2018 ; Voditeljica: prof. dr. sc. Ksenija Dumičić