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Estimating dynamic equilibrium economies: linear versus nonlinear likelihood Author info | Abstract | Publisher info | Download info | Related research | Statistics Juan F. Rubio-Ramirez (Research Department, Federal Reserve Bank of Atlanta, USA)
Jesus Fernández-Villaverde (Department of Economics, University of Pennsylvania, USA)
This paper compares two methods for undertaking likelihood-based inference in dynamic equilibrium economies: a sequential Monte Carlo filter and the Kalman filter. The sequential Monte Carlo filter exploits the nonlinear structure of the economy and evaluates the likelihood function of the model by simulation methods. The Kalman filter estimates a linearization of the economy around the steady state. We report two main results. First, both for simulated and for real data, the sequential Monte Carlo filter delivers a substantially better fit of the model to the data as measured by the marginal likelihood. This is true even for a nearly linear case. Second, the differences in terms of point estimates, although relatively small in absolute values, have important effects on the moments of the model. We conclude that the nonlinear filter is a superior procedure for taking models to the data. Copyright © 2005 John Wiley & Sons, Ltd.
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics .
Volume (Year): 20 (2005)
Issue (Month): 7 ()
Pages: 891-910
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Handle: RePEc:jae:japmet:v:20:y:2005:i:7:p:891-910Contact details of provider: Web page: http://www.interscience.wiley.com/jpages/0883-7252/
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Christopher A. Sims & Jinill Kim & Sunghyun Kim, 2003.
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Computing in Economics and Finance 2003
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Jinill Kim & Sunghyun Kim & Ernst Schaumburg & Christopher A. Sims, 2003.
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BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2002.
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Cahiers de recherche
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Jesús Fernández-Villaverde & Juan F. Rubio-Ramirez & Manuel Santos, 2005.
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Levine's Bibliography
122247000000000822, UCLA Department of Economics.
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"Convergence Properties of the Likelihood of Computed Dynamic Models ,"
PIER Working Paper Archive
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Working Paper
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"Comparing dynamic equilibrium models to data: a Bayesian approach ,"
Journal of Econometrics ,
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2006.
"Estimating Macroeconomic Models: A Likelihood Approach ,"
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Fabio Canova & Luca Sala, 2005.
"Back to square one: identification issues in DSGE models ,"
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927, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2006.
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Fabio Canova & Luca Sala, .
"Back to Square One: Identification Issues in DSGE Models ,"
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303, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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"Back to square one: identification issues in DSGE models ,"
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"How Structural Are Structural Parameters? ,"
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843644000000000057, UCLA Department of Economics.
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Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2006.
"The Research Agenda: Jesus Fernandez-Villaverde and Juan F. Rubio-Ramirez on Estimating DSGE Models ,"
EconomicDynamics Newsletter ,
Review of Economic Dynamics, vol. 8(1), November.
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