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Trend Agnostic One-Step Estimation of DSGE Models

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  • Ferroni Filippo

    ()
    (Banque de France)

Abstract

DSGE models are currently estimated with a two-step approach: the data is first transformed and then DSGE structural parameters are estimated. Two-step procedures have problems, ranging from component misspecification to incorrect assumptions about the correlation between cyclical and non-cyclical components. In this paper, I present a one-step method, where DSGE structural parameters are jointly estimated with filtering parameters. First, I illustrate the properties of the one-step procedures using simulated data. Then, I show that different data transformations imply different structural estimates and that two-step approaches lack a statistical-based criterion to select amongst them. The one-step approach allows to choose the most likely specification of the non-cyclical component for individual series and/or to construct robust estimates by Bayesian averaging. The role of the investment specific shock as source of GDP volatility is reconsidered.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 11 (2011)
Issue (Month): 1 (July)
Pages: 1-36

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Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:25

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Cited by:
  1. Saijo, Hikaru, 2013. "Estimating DSGE models using seasonally adjusted and unadjusted data," Journal of Econometrics, Elsevier, vol. 173(1), pages 22-35.
  2. Kai Liu, 2014. "Public Finances, Business Cycles and Structural Fiscal Balances," Cambridge Working Papers in Economics 1411, Faculty of Economics, University of Cambridge.
  3. Filippo Ferroni, 2010. "Commentary on MEDEA: A DSGE model for the Spanish economy," SERIEs, Spanish Economic Association, vol. 1(1), pages 245-249, March.
  4. Fabio Canova & Filippo Ferroni, 2009. "Multiple filtering devices for the estimation of cyclical DSGE models," Economics Working Papers 1135, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2010.
  5. Girardi, Riccardo & Paruolo, Paolo, 2013. "Wages and prices in Europe before and after the onset of the Monetary Union," Economic Modelling, Elsevier, vol. 35(C), pages 643-653.
  6. Enrique Martínez-García & Diego Vilán & Mark Wynne, 2012. "Bayesian estimation of NOEM models: identification and inference in small samples," Globalization and Monetary Policy Institute Working Paper 105, Federal Reserve Bank of Dallas.
  7. Pierre Lafourcade & Joris de Wind, 2012. "Taking Trends Seriously in DSGE Models: An Application to the Dutch Economy," DNB Working Papers 345, Netherlands Central Bank, Research Department.
  8. Nalan Basturk & Cem Cakmakli & Pinar Ceyhan & Herman K. van Dijk, 2013. "Posterior-Predictive Evidence on US Inflation using Extended Phillips Curve Models with non-filtered Data," Koç University-TUSIAD Economic Research Forum Working Papers 1321, Koc University-TUSIAD Economic Research Forum.
  9. Vasco J. Gabriel & Paul Levine & Joseph Pearlman & Bo Yang, 2010. "An Estimated DSGE Model of the Indian Economy," NIPE Working Papers 29/2010, NIPE - Universidade do Minho.

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