This paper presents and estimates a dynamic stochastic general equilibrium (DSGE) model for the euro area, incorporating sticky prices and wages, habit formation, capital adjustment costs, and variable capacity utilisation. The model is estimated using Bayesian techniques with seven key macroeconomic variables: real GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. It introduces ten orthogonal structural shocks, including productivity, labour supply, investment, preference, cost-push, and monetary policy shocks, to analyze their effects on business cycle fluctuations. The model is used to assess the output (real interest rate) gap, defined as the difference between actual and model-based potential output. The paper finds that the estimated DSGE model performs as well as standard and Bayesian VARs in capturing empirical dynamics. It also identifies the labour supply and monetary policy shocks as the most important drivers of euro area output, while the price mark-up shock is the main determinant of inflation. The model shows that price stickiness is significant in the euro area, and that the effects of structural shocks are consistent with existing evidence. The paper concludes that the model provides a useful tool for monetary policy analysis in an empirically plausible set-up.This paper presents and estimates a dynamic stochastic general equilibrium (DSGE) model for the euro area, incorporating sticky prices and wages, habit formation, capital adjustment costs, and variable capacity utilisation. The model is estimated using Bayesian techniques with seven key macroeconomic variables: real GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. It introduces ten orthogonal structural shocks, including productivity, labour supply, investment, preference, cost-push, and monetary policy shocks, to analyze their effects on business cycle fluctuations. The model is used to assess the output (real interest rate) gap, defined as the difference between actual and model-based potential output. The paper finds that the estimated DSGE model performs as well as standard and Bayesian VARs in capturing empirical dynamics. It also identifies the labour supply and monetary policy shocks as the most important drivers of euro area output, while the price mark-up shock is the main determinant of inflation. The model shows that price stickiness is significant in the euro area, and that the effects of structural shocks are consistent with existing evidence. The paper concludes that the model provides a useful tool for monetary policy analysis in an empirically plausible set-up.