C67 - Input-Output ModelsReturn

This study questions the importance of accounting for sectoral heterogeneity in a DSGE model for the Czech Republic. The benchmark DSGE model originally developed by the Czech Ministry of Finance benefits from features such as wage and price stickiness, habit formation in the utility function and capital adjustment costs. The Input-Output DSGE model extended hereby proves to provide more precise estimates for the evolution of aggregate variables and to supply a more detailed structure of the economy. The set of variables the dynamics of which significantly improve consists of inflation rate and nominal interest rate. The disaggregated model also fits data well in terms of sectoral production functions. Finally, the absence of industrial heterogeneity in the model is shown to lead to an underestimation of the impact of the technology shock on the Czech gross domestic product.

One of the major limitations of the supply-driven input-output (I-O) Ghosh model concerns its linear production function. Using the I-O table, this paper replaces the linear production function with the Cobb-Douglas (CD) production function within the supply-driven model. The two models are compared both theoretically and empirically. Nonlinear production function, relative substitutability of primary factors, and variability of the proportion of intermediate inputs over product levels are the characteristics of the proposed model. The consideration of sectors' Solow residual as Total Factor Productivity (TFP) of sectors is yet another characteristics of the proposed model. The model is also plausible in value added and supply shock computations.

In the present paper, we analyse the determinants of employment growth in V4 countries. While a standard approach relies on the parametric estimation of labour elasticity coefficients, we employ a novel approach based on structural decomposition analysis. This allows us to identify several determinants which mitigate the effects of economic growth on employment. We decompose the overall change in employment into the contribution of six factors: changes in labour productivity, changes in the import of intermediate products, changes in the structure of production, changes in the final demand structure by industries and by sectors, and a change in final demand volume. We show that besides the generally accepted influence of labour productivity growth on employment, other factors such as structural changes and changes in final demand played an important role in employment changes. These results shed some light on low labour elasticity in V4 countries and go beyond the simple labour productivity growth argument.

Many countries decided to launch car scrapping schemes during the 2009 crisis in order to support their car industries and to boost domestic demand. Owing to the existence of significant international trade links in the automotive sector, there is also a strong theoretical foundation for cross-border effects of such scrappage programmes. This paper explores spillovers of the German scheme to the Czech economy on the basis of a close mutual trade link between these two countries and the size of the Czech automotive sector. It is demonstrated that the German programme provided for a significant boost for Czech personal car exports, which were also coupled with increased imports due to large import requirements of the Czech automotive segment. Overall, the contribution of first-round effects of the German car scrapping scheme to the Czech real GDP growth in 2009 is estimated to have reached between 0.4 and 0.5 percentage points.