"Assessing Effects of Joining Common Currency Area with Large-Scale DSGE model: A Case of Poland", IBS Working Paper #3/2008

Tags: working_papers, publications_from_2008

Publication date: 16.12.2008

Authors: Maciej Bukowski, Sebastian Dyrda, Pawel Kowal

In this paper we present a large scale dynamic stochastic general equilibrium model, in order to analyze and simulate effects of Euro introduction in Poland. Presented framework is a based on a two-country open economy model, where foreign acts as the Eurozone, and home as a candidate country. We have implemented various types of structural frictions in the open economy block, that generate empirically observable deviations from purchasing power parity rule. We consider such mechanisms as a division between tradables and nontradables, endogenous pricing-to-market with transportation costs, Balassa-Samuelson effect and non-homothetic production functions. Moreover model contains market imperfections accounting for deviations from UIP, therein especially important features like incomplete capital market with endogenous risk premium.

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