The DSGE model for Latvia is a dynamic, stochastic general equilibrium model for Latvia as a small open economy in the euro area.
DSGE models are used by monetary, fiscal and macroprudential institutions to analyse policy scenarios, explain historical developments and carry out forecasting.
DSGE models are based on general equilibrium theory and microeconomic principles. Unlike real business cycle models, DSGE models include various (inter alia, price) frictions and market failures. Meanwhile, in contrast to CGE (computable general equilibrium) models, DSGE models are dynamic, and expectations of market participants play an important role in their results. In the wake of the global financial crisis, DSGE models were supplemented with financial market frictions. Currently, DSGE models represent the predominant type of structural models used in the theoretical economics literature and economic policy institutions.
On the fiscal DSGE model for Latvia
Bušs, Ginters, Grüning, Patrick. Fiscal DSGE Model for Latvia : Working Paper, No. 5, 2020. [Riga]: Latvijas Banka, 2020. 60 p. .
On the fiscal DSGE model for Latvia (suitable for forecasting)
Bušs, Ginters. Wage Formation, Unemployment and Business Cycle in Latvia : Working Paper, No. 1, 2017. [Riga]: Latvijas Banka, 2017. 69 p. .
Buss, Ginters. Financial frictions in Latvia. Empirical Economics , vol. 51, issue 2, 2016. Springer, 2016, pp. 547–575. .
Buss, Ginters. Search-and-matching frictions and labor market dynamics in Latvia . Dynare Working Paper Series, No. 45, 2015. CEPREMAP, 2015. 74 p.
Examples of DSGE model usage
The government financial support provided during the second wave of the Covid-19 pandemic and its impact on the economy. Macroeconomic Developments Report , March, 2021 [Riga]: Latvijas Banka, 2021.
The reduction of the labour tax burden, Macroeconomic Developments Report, September, 2020 [Riga]: Latvijas Banka, 2020.
Vilerts, Kārlis, Rutkaste, Uldis, Bušs, Ginters. The time is ripe to reduce labour taxes. Makroekonomika.lv, 2020. Available only in Latvian.
Formulating a balanced budget. Macroeconomic Developments Report, June, 2019 [Riga]: Latvijas Banka, 2019.
Macroeconomic consequences of weak lending. Macroeconomic Developments Report, September, 2021 [Riga]: Latvijas Banka, 2021.
The impact of more subdued lending on the economy, Macroeconomic Developments Report, December, 2019, Latvijas Banka.
Kaužēns, Egils, Bušs, Ginters. My friend Eurosceptic has spent 4 years with €. Makroekonomika.lv , 2018. Available only in Latvian.
The fiscal impact of inequality measures. Macroeconomic Developments Report, December, 2018 [Riga]: Latvijas Banka, 2018.
Wages and salaries continue to rise faster than labour productivity. Macroeconomic Developments Report , December, 2017 [Riga]: Latvijas Banka, 2017.
Decline in housing prices in the Nordic countries. Macroeconomic Developments Report , December, 2017 [Riga]: Latvijas Banka, 2017.
Assessment of the tax reform proposal. Macroeconomic Developments Report , June, 2017 [Riga]: Latvijas Banka, 2017.
Brexit risk scenario. Macroeconomic Developments Report , December, 2016 [Riga]: Latvijas Banka, 2016.