An Open-Economy DSGE Model of the Euro Area

Abstract

An open-economy DSGE model for the euro area is presented, with the explicit aim to model the price pass-through for foreign shocks, with a special emphasis on oil price shocks. The model includes a multiple-sector supply side with explicit use of energy as a factor of production and the presence of distribution costs. The model is augmented with an almost symmetric rest of the world and a simpli…ed set of equations for energy-exporting countries. Calibration of the model is done suing extensive use of data, including input-output tables. The conclusion is that a modelling of imports as input factors, not only …nal-demand goods, may help mapping the structure into the data and provide a more robust analysis of the pass-through.

Keywords: Energy sector, Oil shocks, Oil prices, DSGE models, Input-Output modelling

JEL Classification: E31, E32, F41, Q43