In this paper we estimate an extended version of the previously estimated small open economy dynamic stochastic general equilibrium model for Estonia (Gelain and Kulikov 2009). Here we introduce financial frictions, in the form of the so-called financial accelerator. Our main findings are: (1)...

This paper presents an estimated open economy dynamic stochastic general equilibrium model for Estonia. The model is designed to highlight the main driving forces behind the Estonian business cycle and to understand how euro area economic shocks and its monetary policy affect the small open...