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Assessing DSGE Model Nonlinearities

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  • S. Borağan Aruoba
  • Luigi Bocola
  • Frank Schorfheide

Abstract

We develop a new class of nonlinear time-series models to identify nonlinearities in the data and to evaluate nonlinear DSGE models. U.S. output growth and the federal funds rate display nonlinear conditional mean dynamics, while inflation and nominal wage growth feature conditional heteroskedasticity. We estimate a DSGE model with asymmetric wage/price adjustment costs and use predictive checks to assess its ability to account for nonlinearities. While it is able to match the nonlinear inflation and wage dynamics, thanks to the estimated downward wage/price rigidities, these do not spill over to output growth or the interest rate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19693.

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Date of creation: Dec 2013
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Handle: RePEc:nbr:nberwo:19693

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Cited by:
  1. S. Borağan Aruoba & Pablo Cuba-Borda & Frank Schorfheide, 2013. "Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries," NBER Working Papers 19248, National Bureau of Economic Research, Inc.

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