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Bayesian prior elicitation in DSGE models: macro- vs micro-priors

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Abstract

Bayesian approaches to the estimation of DSGE models are becoming increasingly popular. Prior knowledge is normally formalized either be information concerning deep parameters’ values (‘microprior’) or some macroeconomic indicator, e.g. moments of observable variables (‘macroprior’). In this paper we introduce a non parametric prior which is elicited from impulse response functions. Results show that using either a microprior or a macroprior can lead to different posterior estimates. We probe into the details of our result, showing that model misspecification is to blame for that. JEL Classification: C11, C51, E30.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1289.

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Length: 47 pages
Date of creation: Jan 2011
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Handle: RePEc:ecb:ecbwps:20111289

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Keywords: DSGE Models; Bayesian Estimation; Prior Distribution; Impulse Response Function.;

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Cited by:
  1. Jang, Tae-Seok & Sacht, Stephen, 2012. "Identification of animal spirits in a bounded rationality model: An application to the euro area," Economics Working Papers 2012-12, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Dario Caldara & Richard Harrison & Anna Lipinska, 2012. "Practical tools for policy analysis in DSGE models with missing channels," Finance and Economics Discussion Series 2012-72, Board of Governors of the Federal Reserve System (U.S.).

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