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.

keywords: DSGE models, common currency area, open economy models, lab or market search, large scale models

JEL codes: , , ,

publication year: 2008

language : English

thematic categories : ,

publishing series : IBS Working Paper

ISSN : 2451-4373

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