Changes in nominal rigidities in Poland – a regime switching DSGE perspective

Baranowski, Paweł and Kuchta, Zbigniew (2015): Changes in nominal rigidities in Poland – a regime switching DSGE perspective.

Abstract

We estimate a dynamic stochastic general equilibrium model that allows for regimes Markov switching (MS-DSGE). Existing MS-DSGE papers for the United States focus on changes in monetary policy or shocks volatility, contributing the debate on the Great Moderation and/or Volcker disinflation. However, Poland which here serves as an example of a transition country, faced a wider range of structural changes, including long disinflation, EU accession or tax changes. The model identifies high and low rigidity regimes, with the timing consistent with menu cost explanation of nominal rigidities. Estimated timing of the regimes captures the European Union accession and indirect tax changes. The Bayesian model comparison results suggest that model with switching in both analyzed rigidities is strongly favored by the data in comparison with switching only in prices or in wages. Moreover, we find significant evidence in support of independent Markov chains.

• Item Type: MPRA Paper
• Language: English
• Keywords: nominal rigidities, Markov-switching DSGE models, Bayesian model comparison, regime switching
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P22 - Prices

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