A Basic DSGE Model of the Czech Economy

The paper introduces a basic New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) model of the Czech economy. It is a closed economy model with tradable and non-tractable sectors based on microeconomic foundations. The model consists of representative agents. Behavior of a representative household contains rigidities in consumption in a form of a habit formation. Price setting behavior of a representative firm is described by the Calvo style (with a result in a New Keynesian Phillips Curve - NKPC). Central monetary authority implements monetary policy according to a modified Taylor rule (output growth rule model) in the inflation targeting regime. A Bayesian method is used for the estimation of the linearized model equations. A basic analysis of the estimated model is carried out through a description of parameters and impulse response functions analysis. The model seems to be a suitable approximation of the Czech economy behavior and it can be extended to a form of a more complex model structure.