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Institute for Economies in Transition, Bank of Finland BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland

No 14/2009:
Stock market wealth effects in an estimated DSGE model for Hong Kong

Michael Funke (), Michael Paetz and Ernest Pytlarczyk

Abstract: This paper develops and estimates an open economy dynamic stochastic general equilibrium (DSGE) model of the Hong Kong economy. The model features short-run price rigidities generated by monopolistic competition and staggered reoptimisation. The model is enhanced with wealth effects due to stock price dynamics, which we believe to be important. For this reason we adopt a perpetual youth approach. Model parameters and unobserved components are estimated with a Bayesian maximum likelihood procedure, conditional on prior information concerning the values of parameters.

Keywords: DSGE models; wealth effects; open economy; Hong Kong; (follow links to similar papers)

JEL-Codes: D91; E21; E44; F41; (follow links to similar papers)

43 pages, October 21, 2009

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