Analysis of Macroeconomic Aggregates within a DSGE Framework

The aim of this thesis is to derive a comprehensive DSGE model as a system of dynamic stochastic equations that explains economic developments in the euro area. The central hypothesis of the thesis is whether monetary policy shocks have a stronger and more persistent impact on inflation in the euro area than technological or wage shocks. A theoretical framework is introduced, describing the relationships within this mathematical apparatus, derived from microfoundations. Matlab software is used for parameter estimation. The parameters are further examined for robustness, with most being estimated with narrow posterior distributions. A significant part of the thesis is devoted to impulse response functions for output, inflation, and the interest rate in reaction to three exogenous shock processes. The impulse responses correspond to the behavior of macroeconomic variables commonly described in the literature. The main contribution of the thesis is the partial confirmation of the initial hypothesis, which is supported by the variance decomposition of the effects of shocks on the model variables. Based on the results, it can be concluded that monetary shocks have a comparable impact to technological shocks in the euro area, and a clearly stronger impact than wage shocks.