Jaromír Tonner

Financial Frictions Relevance during the Crisis: Czech Case

In this paper, we estimate a small open economy dynamic stochastic general equilibrium model with financial accelerator. Our aim is to find a satellite model with financial block for imposing judgments on comprehensive models which lack direct financial variables. We choose the model originally developed by Mohamad Hasni Shaari [5] as our starting point. After the basic introduction to the model, we show results for a Bayesian estimation and a recursive Bayesian estimation on Czech data. Finally, we carry out an experiment which shows us that the reducing interest rates would probably be faster, bigger and longer lasting with a model, which in itself contains financial frictions. On the other hand, the risk of such a decision stems from the instability of estimated parameters.