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Confronting model misspecification in macroeconomics

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  • Daniel F. Waggoner
  • Tao Zha

Abstract

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

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2010-18.

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Date of creation: 2010
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Handle: RePEc:fip:fedawp:2010-18

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Blog mentions

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
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. N. Fawcett & G. Kapetanios & J. Mitchell & S. Price, 2014. "Generalised Density Forecast Combinations," CAMA Working Papers 2014-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Marco Del Negro & Frank Schorfheide, 2012. "DSGE model-based forecasting," Staff Reports 554, Federal Reserve Bank of New York.
  3. Wolters, Maik H., 2011. "Forecasting under Model Uncertainty," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48723, Verein für Socialpolitik / German Economic Association.
  4. Shaun P Vahey & Elizabeth C Wakerly, 2013. "Moving towards probability forecasting," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and inflation dynamics in Asia and the Pacific, volume 70, pages 3-8 Bank for International Settlements.
  5. Robert Tetlow & Kirstin Hubrich, 2013. "Financial stress and economic dynamics: The transmission of crises," 2013 Meeting Papers 571, Society for Economic Dynamics.
  6. Wolters, Maik Hendrik, 2012. "Evaluating point and density forecasts of DSGE models," IMFS Working Paper Series 59, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  7. Amisano, Gianni & Geweke, John, 2013. "Prediction using several macroeconomic models," Working Paper Series 1537, European Central Bank.

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