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How Structural Are Structural Parameters?

In: NBER Macroeconomics Annual 2007, Volume 22

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  • Jesús Fernández-Villaverde
  • Juan F. Rubio-Ramírez

Abstract

This paper studies how stable over time are the so-called "structural parameters" of dynamic stochastic general equilibrium (DSGE) models. To answer this question, we estimate a medium-scale DSGE model with real and nominal rigidities using U.S. data. In our model, we allow for parameter drifting and rational expectations of the agents with respect to this drift. We document that there is strong evidence that parameters change within our sample. We illustrate variations in the parameters describing the monetary policy reaction function and in the parameters characterizing the pricing behavior of firms and households. Moreover, we show how the movements in the pricing parameters are correlated with inflation. Thus, our results cast doubts on the empirical relevance of Calvo models.

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This chapter was published in:

  • Daron Acemoglu & Kenneth Rogoff & Michael Woodford, 2008. "NBER Macroeconomics Annual 2007, Volume 22," NBER Books, National Bureau of Economic Research, Inc, number acem07-1, octubre-d.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 4087.

    Handle: RePEc:nbr:nberch:4087

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