Page 106 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.82, # 2, 2025, pp. 96-116

Calibration strategy: concise empirical snapshot for small open economies
The list below provides very short, empirical steady-state targets that a reader may
use to calibrate the DSGE model for small open economies. Values are taken from
central bank/official aggregates and international databases and are reported as
calibration targets only; we do not estimate the model in this paper.

● Azerbaijan. Policy rate = 7.25% (World Bank, 2025). Deposit yield = 9.55%
(TheGlobal Economy.com, no date). Loan/ deposit ≈ 73% (Fitch Ratings,
2025). FDI / net inflows ≈ 0.3% of GDP (World Bank, no date).
● Georgia. Policy rate = 8.0% (IMF, 2025a). Deposit yields = 10.97%
(TheGlobal Economy.com, no date). Loan/deposit ≈ 109.7% (IMF, 2025a).
FDI / net inflows ≈ 4% of GDP (World Bank, no date).

Mapping

• Set = observed policy / overnight rate (convert annual → quarterly by (1 + ) 1/4 −
1).
• Set pre-SDC deposit remuneration = observed average deposit yield; choose

(SDC remuneration) as scenario values (e.g., 0, below , or equal to ).

• Calibrate intermediation capacity θ = sample mean of loans/deposits (use a calm pre-
shock window;e.g.,Azerbaijan≈0.73,Georgia≈1.097).
• Map external steady-flow = FDI / net inflows (% GDP) into the model’s external-
flow steady state (annual % → model frequency).

Reporting requirement (brief): list data source (URL), sample window, conversion
formulae (annual → quarter), steady-state shares (loans/GDP, deposits/GDP,
reserves/GDP), and a ±20% sensitivity sweep for , , , .

Note: the numbers above are empirical calibration targets intended to guide replication
or follow-up estimation; the DSGE is not re-estimated here.

ANALYTICAL RESULTS AND COMPARATIVE STATICS
We summarize the main analytic propositions (proof sketches in the Appendix).
Proposition 1 (SDC substitution and deposit rates). If banks have positive deposit

market power, introduction of an interest-bearing SDC with > 0 forces banks to
increase . If deposit demand elasticity is finite, equilibrium deposit rates increase

and bank net interest margins compress. (Sketch: banks maximize profits choosing ;
higher SDC attractiveness reduces deposit demand at given , inducing banks to raise

deposit rates to retain deposits.)

Implication. Higher raises households’ return on deposits but reduces banks’

profitability and may reduce net lending.

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