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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.

We explore the natural rate of interest, shortly r*, in emerging economies. If economic growth originates from convergence, then growth, say, from technological progress will be lower than we find in the data and, hence, r* will be lower. Ignoring convergence upwardly biases our estimates of r*. We extend the New Keynesian small open economy model to take account of convergence. The model is estimated with Bayesian techniques for four emerging economies in Central and Eastern Europe: Poland, Czech Republic, Hungary and Romania. The estimation process is informed by empirical evidence about a rapid catch-up of our example economies during the period from 2003 to 2019. We confirm the decline in r* over the last decades. When we account for capital deepening, we find meaningful differences with non-negligible implications for monetary policy.