Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model

• Published in: Economic modelling Vol. 26; no. 6; pp. 1245 - 1269
• Main Author: Kolasa, Marcin
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.11.2009; Elsevier; Elsevier Science Ltd
• Series: Economic Modelling
• Subjects: Autonomy; Bayesian estimation; Bayesian method; Correlation analysis; Decision making; Economic and Monetary Union; Economic conditions; Economic models; Economic shock; Euro; Euro area; Europe; European Monetary Union; Eurozone; Foreign exchange rates; General economic equilibrium; Heterogeneity; Monetary unions; Poland; Regional disparities; Studies; Two-country DSGE; Two-country DSGE Bayesian estimation Heterogeneity; Volatility; Poland; Europe; C52; Heterogeneity; F41; Bayesian estimation; E52; Two-country DSGE; C51
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2009.06.001

This paper presents a two-country model linking Poland and the euro area and applies it for assessment of heterogeneity across these two regions. Overall, our results can be seen as rather inconclusive about the differences in parameters describing agents' decision-making in Poland and in the euro area. On the contrary, we find strong evidence for heterogeneity in terms of volatility and synchronization of shocks hitting both economies. Our results may be viewed as a step towards estimating the costs of Poland's entry to the European Monetary Union, associated with giving up the monetary autonomy and losing benefits from stabilizing movements of the exchange rate.