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A multi-country New Keynesian DSGE model with incomplete exchange rate pass-through : an application for the Euro-area

Author

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  • Tovonony Razafindrabe

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper develops an estimated multi-country open economy dynamic stochastic general equilibrium (DSGE) model with incomplete exchange rate pass-through (ERPT) for the Euro-area. It is designed to model global international linkages and to assess the international transmission of shocks under an endogenous framework and incomplete ERPT assumption. First, we use the global VAR model to estimate the steady state of observable endogenous variables of the multi-country DSGE model in order to take into account international linkages, possible cointegration relationships within domestic variables and between domestic and foreign variables, and the role of common unobserved and observed global factors such as oil prices. Second, using the estimated multi-country DSGE model for the Euro-area to conduct ERPT analysis yields the following results. On the one hand, exchange rate volatility contributes to a large part of the import price inflation variation of the Euro-area in contrast to foreign markup shocks. On the other hand, nominal rigidity induces a persistent but lower impact of the exchange rate changes on import inflation.

Suggested Citation

  • Tovonony Razafindrabe, 2016. "A multi-country New Keynesian DSGE model with incomplete exchange rate pass-through : an application for the Euro-area," Post-Print halshs-01683812, HAL.
    • Handle: RePEc:hal:journl:halshs-01683812
    DOI: 10.1016/j.econmod.2015.03.003
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    Cited by:

    1. Morrisy, Stephen D., 2017. "Efficient estimation of macroeconomic equations with unobservable states," Economic Modelling, Elsevier, vol. 60(C), pages 408-423.
    2. Georgiadis, Georgios & Jančoková, Martina, 2020. "Financial globalisation, monetary policy spillovers and macro-modelling: Tales from 1001 shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    3. Garcia-Lazaro, Aida & Mistak, Jakub & Gulcin Ozkan, F., 2021. "Supply chain networks, trade and the Brexit deal: a general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    4. Audzei, Volha & Brůha, Jan, 2022. "A model of the Euro area, China, and the United States: Trade links and trade wars," Economic Modelling, Elsevier, vol. 111(C).
    5. Viziniuc, Mădălin, 2021. "Winners and losers of central bank foreign exchange interventions," Economic Modelling, Elsevier, vol. 94(C), pages 748-767.
    6. Songlijiang Pan, 2018. "The Impact of RMB Exchange Rate Fluctuation on Price Level in China: An Empirical Analysis Based on the Vector Error Correction Model," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(5), pages 184-196, May.

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