An Open Economy DSGE Model with Search-and-Matching Frictions: The Case of Hungary

A DSGE Model of Slovakia with Frictional Labor Market and Monetary Regime Switch

“…Albertini et al (2012) or Jakab and Kónya (2016), this connection still is relatively lower than can be observed in the real economy. Therefore, any future research could cover the analysis of this relationship and should focus on the improvement of the interactions between the labor market and other variables.…”

“…However, my estimates also tilt this parameter in favor of unemployment in both shorter periods ( > 0.5). The model reports relatively low values of firms' bargaining power, , compared to the estimates by Němec (2013) for Slovakia and the Czech Republic or Jakab and Kónya (2016) for Hungary who report this parameter to be close to 1. Furthermore, even though the elasticity of vacancy creation, , is significantly higher than 1, implying increasing hiring costs (contrary to the original paper by Rotemberg (2008), who assigned this parameter a value far below 1), it is noticeably lower than values estimated by Němec (2013) (2.3) or Albertini et al (2012) (5.22).…”

“…The leading causes of fluctuations in unemployment resulted from the changes in the matching effectiveness and bargaining power. Unlike Albertini et al (2012) or Jakab and Kónya (2016) who in their articles find the labor market variables to be influenced mainly by the labor market shocks, I also describe the important impact of other shocks, such as changes in preferences or costs.…”

“…Table 1 contains the values of fixed parameters. The discount factor, labor share in production and parameter of risk premium are obtained from other articles dealing with similar models and economies, like those by Jakab and Kónya (2016) or Němec (2013). I imitate Senaj et al (2010) and Ireland (2007) in the setting of the elasticity of substituBrought to you by | MIT Libraries Authenticated Download Date | 5/10/18 7:26 AM tion between differentiated goods, , to 6, which corresponds to the price adjustment cost parameter values defined below.…”

“…The same values are used for the estimation of the first part of the observed time period. Following Jakab and Kónya (2016), I then use the posterior estimates as a prior setting for the estimation of the second sub-sample. The Taylor-rule parameters are not estimated in this period as the NBS gave up its power to intervene in the flows of the Slovak economy in favor of the ECB.…”