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Forming priors for DSGE models (and how it affects the assessment of nominal rigidities)

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  • Marco Del Negro
  • Frank Schorfheide

Abstract

This paper discusses prior elicitation for the parameters of dynamic stochastic general equilibrium (DSGE) models and provides a method for constructing prior distributions for a subset of these parameters from beliefs about the moments of the endogenous variables. The empirical application studies the role of price and wage rigidities in a New Keynesian DSGE model and finds that standard macro time series cannot discriminate among theories that differ in the quantitative importance of nominal frictions.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 320.

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Date of creation: 2008
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Handle: RePEc:fip:fednsr:320

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Keywords: Time-series analysis ; Business cycles ; Stochastic analysis ; Keynesian economics ; Equilibrium (Economics);

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