LED: An estimated DSGE model of the Luxembourg economy for policy analysis

Abstract. This paper outlines a new estimated dynamic stochastic general equilibrium (DSGE) model of the Luxembourg economy named LED, for Luxembourg Estimated DSGE. The paper provides a thorough discussion of the model structure, explains how LED is solved and estimated, and shows how it can be used to study important properties of the Luxembourg economy. The empirical results are encouraging: parameter estimates take reasonable values, the model fits the data well, and its implications regarding the determinants of economic growth and cyclical fluctuations in Luxembourg are plausible.

JEL Codes:  C11, C32, E32, E37.

Keywords: DSGE models, open-economy macroeconomics, Bayesian inference, policy anal- ysis, Luxembourg.