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

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Author Info
Pablo A. Guerron () (Department of Economics, North Carolina State University)

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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.

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File URL: ftp://ftp.ncsu.edu/pub/ncsu/economics/RePEc/pdf/whatvariables.pdf
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Publisher Info
Paper provided by North Carolina State University, Department of Economics in its series Working Paper Series with number 012.

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Length: 46 pages
Date of creation: Jul 2007
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Handle: RePEc:ncs:wpaper:012

Note: First draft 2007-06
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Web page: http://www.mgt.ncsu.edu/faculty/economics.html
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Related research
Keywords: Bayesian Estimation DSGE Variable Selection Impulse Response Entropy

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series 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

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  1. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June. [Downloadable!] (restricted)
  2. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez, 2007. "How Structural Are Structural Parameters?," NBER Working Papers 13166, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Jean Boivin & Marc Giannoni, 2006. "DSGE Models in a Data-Rich Environment," NBER Working Papers 12772, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Martin Eichenbaum & Jonas Fisher, 2004. "Fiscal Policy in the Aftermath of 9/11," NBER Working Papers 10430, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October. [Downloadable!] (restricted)
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  6. David E. Altig & Lawrence J. Christiano & Martin Eichenbaum & Jesper Linde, 2004. "Firm-specific capital, nominal rigidities, and the business cycle," Working Paper 0416, Federal Reserve Bank of Cleveland. [Downloadable!]
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  7. An, Sungbae & Schorfheide, Frank, 2005. "Bayesian Analysis of DSGE Models," CEPR Discussion Papers 5207, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 123(1), pages 153-187, November. [Downloadable!] (restricted)
  9. Lawrence J. Christiano, Martin Eichenbaum, and Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
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  10. Sargent, Thomas J, 1989. "Two Models of Measurements and the Investment Accelerator," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 251-87, April. [Downloadable!] (restricted)
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