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The term structure of interest rates in a small open economy DSGE model with Markov switching

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  • Horváth, Roman
  • Maršál, Aleš

Abstract

We lay out a small open economy dynamic stochastic general equilibrium (DSGE) model with Markov switching to study the term structure of interest rates. We extend the previous models by opening up the economy and adding a foreign demand channel. As a result, we explain the term structure of Czech interest rates and that the open economy version of the model fits reasonably well the period after the adoption of inflation targeting, which was characterized by two regimes: 1) a disinflation regime and 2) a price stability regime.

Suggested Citation

  • Horváth, Roman & Maršál, Aleš, 2014. "The term structure of interest rates in a small open economy DSGE model with Markov switching," FinMaP-Working Papers 22, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    • Handle: RePEc:zbw:fmpwps:22
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    References listed on IDEAS

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    Cited by:

    1. Johannes Hermanus Kemp & Hylton Hollander, 2020. "A medium-sized, open-economy, fiscal DSGE model of South Africa," WIDER Working Paper Series wp-2020-92, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    DSGE small open economy model; term structure of interest rates; regime switching;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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