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Data Revisions in the Estimation of DSGE Models

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  • Casares, Miguel
  • Vázquez Pérez, Jesús

Abstract

Revisions of US macroeconomic data are not white-noise. They are persistent, correlated with real-time data, and with high variability (around 80% of volatility observed in US real-time data). Their business cycle effects are examined in an estimated DSGE model extended with both real-time and final data. After implementing a Bayesian estimation approach, the role of both habit formation and price indexation fall significantly in the extended model. The results show how revision shocks of both output and inflation are expansionary because they occur when real-time published data are too low and the Fed reacts by cutting interest rates. Consumption revisions, by contrast, are countercyclical as consumption habits mirror the observed reduction in real-time consumption. In turn, revisions of the three variables explain 9.3% of changes of output in its long-run variance decomposition.

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Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2012-06.

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Date of creation: 2012
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Handle: RePEc:ehu:dfaeii:8759

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Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: DSGE models; data revisions; business cycles;

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  1. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2008. "A Comparison Of Forecast Performance Between Federal Reserve Staff Forecasts, Simple Reduced-Form Models, And A Dsge Model," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2009-03, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Norman R. Swanson & Valentina Corradi & Andres Fernandez, 2011. "Information in the Revision Process of Real-Time Datasets," Departmental Working Papers, Rutgers University, Department of Economics 201107, Rutgers University, Department of Economics.
  3. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers, Federal Reserve Bank of Philadelphia 99-4, Federal Reserve Bank of Philadelphia.
  4. Edward Herbst & Frank Schorfheide, 2011. "Evaluating DSGE model forecasts of comovements," Working Papers, Federal Reserve Bank of Philadelphia 11-5, Federal Reserve Bank of Philadelphia.
  5. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(2), pages 281-313, October.
  6. Ben S. Bernanke & Julio J. Rotemberg, 1997. "Editorial in "NBER Macroeconomics Annual 1997, Volume 12"," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1997, Volume 12, pages 1-6 National Bureau of Economic Research, Inc.
  7. Ben S. Bernanke & Julio J. Rotemberg, 1997. "NBER Macroeconomics Annual 1997, Volume 12," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number bern97-1.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Data Revisions in the Estimation of DSGE Models
    by Christian Zimmermann in NEP-DGE blog on 2012-10-28 18:50:42
  2. Data Revisions in the Estimation of DSGE Models
    by Christian Zimmermann in NEP-DGE blog on 2012-10-28 18:50:42

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