The Convergence Dynamics of a Transition Economy: The Case of the Czech Republic

By Jan Bruha, Jiri Podpiera, Stanislav Polak

May 1, 2007

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Jan Bruha, Jiri Podpiera, and Stanislav Polak. The Convergence Dynamics of a Transition Economy: The Case of the Czech Republic, (USA: International Monetary Fund, 2007) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In this paper we develop a two-country dynamic general equilibrium model by means of which we seek to explain the long-run paths of a converging emerging market economy. We borrow a paradigm from the New Open Economy Macroeconomics literature and amend it to address specific features such as initial asymmetry in development and size of economies as well as different speed of capital accumulation. Using a calibration of productivity and deep parameters for the Czech economy we demonstrate the ability of the model to consistently replicate dynamics in key macroeconomic variables that are essential inputs for commonly used "gap models" in monetary policy routine. Based on the calibration we draw implications for future convergence of the Czech economy.

Subject: Emerging and frontier financial markets, Exports, Financial markets, Foreign exchange, International trade, Production, Productivity, Real exchange rates, Total factor productivity

Keywords: Convergence, Eastern Europe, Eligible firm, Emerging and frontier financial markets, Emerging market economy, Exchange rate, Exports, Firm of vintage, Firm productivity, Fixed cost, Market structure, Monetary policy, Production function, Productivity, Real exchange rates, Total factor productivity, Two-country modeling, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/116
Stock No:

WPIEA2007116
ISBN:

9781451866803
ISSN:

1018-5941

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