DSGE Model Of A Small Open Economy: France

Abstract

In this paper we asses the effects and the transmission mechanisms of domestic and external shocks (we take a productivity shock associated to an imported energy shock) on the macroeconomic variables of a small open economy, using a dynamic stochastic general equilibrium model. We estimate a DSGE model in an open economy: France. In a first step, we begin by studying the cyclical features of the French economy, those of its main trading partners and the USA; this exercise enables us to make comparisons between France and its European neighbours. Once the facts are established, we will describe our model, its main features, then we solve it, make calibration and check the effects of exogenous shocks on the economic variables through the response impulse functions and the variance decomposition. Finally, we make comparison between the model’s statistical moments of order two and those related to real facts in order to assess the validity of the model. It appears from our investigation, a significant correlation of the French cyclical characteristics with those of its neighbours. The France economy is also more vulnerable to technology shocks than to price of imported energy shocks.