We present a two-country New Open Economy Macro model of the Austrian economy within the European Union's Economic & Monetary Union (EMU). The model includes both nominal and real frictions that have proven to be important in matching business cycle facts, and that allows for an investigation of the effects and cross-country transmission of a number of structural shocks: shocks to technologies, shocks to preferences, cost-push type shocks and policy shocks. The model is estimated using Bayesian methods on quarterly data covering the period of 1976:Q1- 2005:Q1. In addition to the assessment of the relative importance of various shocks, the model also allows to investigate effects of the monetary regime switch with the final stage of the EMU and investigates in how far this has altered macroeconomic transmission. We find that Austria's economy appears to react stronger to demand shocks, while in the rest of the Euro Area supply shocks have a stronger impact. Comparing the estimations on pre-EMU and EMU subsamples we find that the contribution of (rest of the) Euro Area shocks to Austria's business cycle fluctuations has increased significantly. (author´s abstract) / Series: EI Working Papers / Europainstitut

We build a fully microfounded dynamic stochastic general equilibrium (DSGE) model, which is estimated employing Bayesian methods. The model captures the most salient features of Austria as a small open economy, the Euro Area (EA) and the United States (US). Further analysis is conducted through numerical simulations to examine how nominal and real shocks are propagated. Besides, welfare cost of nominal rigdities are calculated. We distinguish two sample periods "pre-EMU" and "EMU". In the former, we maintain the assumption of full commitment of respective (independent) Central Banks towards their monetary rules, whereas in the latter, the monetary policy of Austria is fully aligned with the European Central Bank. Main results are derived from Bayesian estimation and simulation of the estimated model. Welfare calculations from the estimated model suggest that in the pre-EMU period, the EA and Austria present welfare costs close to one percent of steady-state comsumption, whereas the U.S. welfare costs is slightly higher (-1.52 percent). As is would be expected, in the second subsample welfare costs in the EA decrease, indicating an improvement in the allocation during the EMU regime (similarly in the U.S.), whereas in Austria welfare costs go up. / Series: EI Working Papers / Europainstitut