This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model for the euro area, incorporating features such as sticky prices and wages, habit formation, variable capital utilization, and costs of adjustment in capital accumulation. The model is estimated using Bayesian techniques with seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. The introduction of ten orthogonal structural shocks, including productivity, labor supply, investment, preference, cost-push, and monetary policy shocks, allows for an empirical investigation of their effects and contributions to business cycle fluctuations in the euro area. The estimated model is also used to analyze the output (real interest rate) gap, defined as the difference between actual and model-based potential output (real interest rate). Key findings include: 1. The estimated DSGE model performs as well as standard and Bayesian VARs in capturing the empirical stochastics and dynamics in the data. 2. The model yields plausible estimates for the structural parameters, indicating a considerable degree of price stickiness in the euro area. 3. The effects of various structural shocks on the euro area economy are consistent with existing evidence, such as the hump-shaped negative effect of a temporary monetary policy tightening on output and inflation. 4. Labor supply and monetary policy shocks are the most important structural shocks driving variations in euro area output, while price markup shocks are the most significant determinants of inflation. 5. The model is used to calculate the potential output level and real interest rate, with confidence bands around these estimates being quite large. The paper concludes by discussing the implications of the findings and suggesting further research directions.This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model for the euro area, incorporating features such as sticky prices and wages, habit formation, variable capital utilization, and costs of adjustment in capital accumulation. The model is estimated using Bayesian techniques with seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. The introduction of ten orthogonal structural shocks, including productivity, labor supply, investment, preference, cost-push, and monetary policy shocks, allows for an empirical investigation of their effects and contributions to business cycle fluctuations in the euro area. The estimated model is also used to analyze the output (real interest rate) gap, defined as the difference between actual and model-based potential output (real interest rate). Key findings include: 1. The estimated DSGE model performs as well as standard and Bayesian VARs in capturing the empirical stochastics and dynamics in the data. 2. The model yields plausible estimates for the structural parameters, indicating a considerable degree of price stickiness in the euro area. 3. The effects of various structural shocks on the euro area economy are consistent with existing evidence, such as the hump-shaped negative effect of a temporary monetary policy tightening on output and inflation. 4. Labor supply and monetary policy shocks are the most important structural shocks driving variations in euro area output, while price markup shocks are the most significant determinants of inflation. 5. The model is used to calculate the potential output level and real interest rate, with confidence bands around these estimates being quite large. The paper concludes by discussing the implications of the findings and suggesting further research directions.