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What You Match Does Matter: The Effects of Data on DSGE Estimation

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  • Pablo A. Guerron

    (Department of Economics, North Carolina State University)

Abstract

This paper explores the effects of using alternative data sets for the estimation of DSGE models. I find that the estimated structural parameters and the model's outcomes are sensitive to the variables used for estimation. Depending on the set of variables the point estimate for habit formation ranges from 0.70 to 0.97. Similarly, the interest-smoothing coefficient in the Taylor rule fluctuates between 0.06 and 0.76. In terms of the model's predictions, if interest rates are excluded during estimation, the estimated structural coefficients are such that the model forecasts a strong deflation following an expansionary monetary expansion. More importanlty, three ways to assess different observable sets are proposed. Based on these measures, I find that that including the price of investment in the data set delivers the best results.

Suggested Citation

  • Pablo A. Guerron, 2007. "What You Match Does Matter: The Effects of Data on DSGE Estimation," Working Paper Series 012, North Carolina State University, Department of Economics.
    • Handle: RePEc:ncs:wpaper:012
    Note: First draft 2007-06
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    More about this item

    Keywords

    Bayesian Estimation; DSGE; Variable Selection; Impulse Response; Entropy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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