A dynamic stochastic general equilibrium model for Switzerland

Dr. Nicolas Alexis Cuche-Curti, Harris Dellas and Jean-Marc Natal

Issue
2009-05

Pages
49

JEL classification
E27, E52, E58

Keywords
DSGE, forecasting, small open economy, Switzerland

Year
2009

This paper presents a DSGE (dynamic stochastic general equilibrium) model of the Swiss economy used since 2007 in the monetary policy decision process at the Swiss National Bank. In addition to forecasting the likely course of main macro variables under various scenarios for the Swiss economy, the model DSGE-CH serves as a laboratory for studying business cycles and examining the effects of actual and hypothetical monetary policies. The microfounded model DSGE-CH represents Switzerland as a small open economy with optimizing economic agents facing several real and nominal rigidities and exogenous foreign and domestic shocks. The comparison of the model's implications with the real world indicates that DSGE-CH performs well along standard dimensions. It captures the overall stochastic structure of the Swiss economy as represented by the moments of its key macroeconomic variables, furthermore, it has appropriate dynamic properties, as judged by its impulse response functions. Finally, it quite accurately replicates the historical path of major Swiss variables.