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Confronting Model Misspecification in Macroeconomics

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  • DANIEL F. WAGGONER
  • TAO ZHA

    ()

Abstract

We confront model misspecification in macroeconomics by proposing an analytic framework for merging multiple models. This framework allows us to 1) address uncertainty about models and parameters simultaneously and 2) trace out the historical periods in which one model dominates other models. We apply the framework to a richly parameterized DSGE model and a corresponding BVAR model. The merged model, fitting the data better than both individual models, substantially alters economic inferences about the DSGE parameters and about the implied impulse responses.

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Bibliographic Info

Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 1012.

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Date of creation: Nov 2010
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Handle: RePEc:emo:wp2003:1012

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  1. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557.
  2. John Geweke & Gianni Amisano, 2009. "Optimal Prediction Pools," Working Paper Series 1017, European Central Bank.
  3. Chib, Siddhartha, 1996. "Calculating posterior distributions and modal estimates in Markov mixture models," Journal of Econometrics, Elsevier, vol. 75(1), pages 79-97, November.
  4. Christopher A. Sims & Daniel F. Waggoner & Tao Zha, 2006. "Methods for inference in large multiple-equation Markov-switching models," Working Paper 2006-22, Federal Reserve Bank of Atlanta.
  5. Geweke, John & Amisano, Gianni, 2011. "Optimal prediction pools," Journal of Econometrics, Elsevier, vol. 164(1), pages 130-141, September.
  6. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  7. Zheng Liu & Daniel F. Waggoner & Tao Zha, 2010. "Sources Of Macroeconomic Fluctuations: A Regime-Switching Dsge Approach," Emory Economics 1002, Department of Economics, Emory University (Atlanta).
  8. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, August.
  9. James D. Hamilton & Daniel F. Waggoner & Tao Zha, 2004. "Normalization in econometrics," Working Paper 2004-13, Federal Reserve Bank of Atlanta.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Confronting Model Misspecification in Macroeconomics
    by Christian Zimmermann in NEP-DGE blog on 2011-01-06 00:58:27
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Cited by:
  1. Kirstin Hubrich & Robert J. Tetlow, 2012. "Financial stress and economic dynamics: the transmission of crises," Finance and Economics Discussion Series 2012-82, Board of Governors of the Federal Reserve System (U.S.).
  2. Marco Del Negro & Frank Schorfheide, 2012. "DSGE model-based forecasting," Staff Reports 554, Federal Reserve Bank of New York.

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