A DSGE Model with Financial Dollarization – the Case of Serbia
We amend a DSGE model of a small open economy by adding financial euroization in order to capture the main channels of the monetary transmission mechanism in match the Serbian data. In contrast to the standard DSGE workhorse, the model encompasses commercial banks and foreign-exchange-denominated deposits and loans. Given these features, the model is well suited to evaluating effects of the nominal exchange rate on the financial wealth and consumption of households. The model structure, including optimization problems and first-order conditions, is provided in the paper. The model properties are tested to match the stylized facts of dollarized economies. Specifically, the model is calibrated to the Serbian data, and a model-consistent multivariate filter is used to identify unobserved trends and gaps.
JEL codes: E44, F41, F47
Keywords: DSGE model, financial dollarization
Issued: June 2017
Download: CNB WP No. 2/2017 (pdf, 750 kB)