Work detail

The Role of Heterogeneous Households in the DSGE model: Application to the Czech Republic

Author: Mgr. Michal Palas
Year: 2017 - winter
Leaders: Mgr. Božena Bobková
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 92
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/166361/
Abstract: In this thesis, we study the role of non-Ricardian households in an open economy dynamic
stochastic general equilibrium model calibrated for the Czech Republic. We show that the
presence of non-Ricardian households induces a short-term raise in aggregate consumption in
response to a government spending shock. The combination of price and wage rigidities, habit
formation, and the open economy design enables a low share of non-Ricardian consumers to
be sufficient to predict the positive comovement of government spending and aggregate
consumption. We estimate the sensitivity of consumption to changes in disposable income in
the Czech Republic, and our results suggest that a significant share of income goes to nonRicardian
households. If the nominal-wage stickiness is assumed, the inclusion of nonRicardian
households does not considerably alter the determinacy of the model, and an
interest rate rule satisfying the Taylor principle is sufficient to get a unique stable solution.
The overall performance of the model is studied through the analysis of impulse responses to
various shocks.

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