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Bayesian estimation of a DSGE model for the Portuguese economy

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  • Vanda Almeida

Abstract

In this paper, a New-Keynesian DSGE model for a small open economy integrated in a monetary union is developed and estimated for the Portuguese economy, using a Bayesian approach. Estimates for some key structural parameters are obtained and a set of exercises exploring the model's empirical properties and the results' robustness are performed. A survey on the main events and literature associated with DSGE models is also provided, as well as a comprehensive discussion of Bayesian estimation and model comparison techniques. The model features five types of economic agents namely households, firms, aggregators, the rest of the world and the government, and includes a number of shocks and frictions, which enable a closer matching of the short-run properties of the data and a more realistic short- term adjustment to shocks. It is assumed from the outset that monetary policy is defined by the union's central bank and that the domestic economy's size is negligible, relative to the union's one, and therefore its specific economic fluctuations have no influence on the union's macroeconomic aggregates and monetary policy. A risk-premium is considered, to allow for deviations of the domestic economy's interest rate from the union's one. Furthermore it is assumed that all trade and financial flows are performed with countries belonging to the union, which implies that the nominal exchange rate is irrevocably set to unity.

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Bibliographic Info

Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200914.

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Date of creation: 2009
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Handle: RePEc:ptu:wpaper:w200914

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  1. Marco Del Negro & Frank Schorfheide, 2008. "Forming Priors for DSGE Models (and How it Affects the Assessment of Nominal Rigidities)," NBER Working Papers 13741, National Bureau of Economic Research, Inc.
  2. Marco Del Negro & Frank Schorfheide & Frank Smets & Raf Wouters, 2004. "On the fit and forecasting performance of New Keynesian models," Working Paper, Federal Reserve Bank of Atlanta 2004-37, Federal Reserve Bank of Atlanta.
  3. Avouyi-Dovi, S. & Matheron, J. & Fève, P., 2007. "DSGE models and their importance to central banks," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, Banque de France, issue 09, pages 25-46, Autumn.
  4. Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, Elsevier, vol. 123(1), pages 153-187, November.
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Cited by:
  1. Zhicheng Zhou & Prapatchon Jariyapan, 2013. "The impact of macroeconomic policies to real estate market in People's Republic of China," The Empirical Econometrics and Quantitative Economics Letters, Faculty of Economics, Chiang Mai University, vol. 2(3), pages 75 - 92, September.
  2. Jean Pierre Allegret & Mohamed Tahar Benkhodja, 2011. "External Shocks and Monetary Policy in a Small Open Oil Exporting Economy," EconomiX Working Papers 2011-39, University of Paris West - Nanterre la Défense, EconomiX.
  3. da Silva, Marcos Soares & Divino, Jose Angelo, 2013. "The role of banking regulation in an economy under credit risk and liquidity shock," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 266-281.
  4. Kamal, Mona, 2011. "Bayesian Estimation of Dynamic Stochastic General Equilibrium Model Using UK Data," MPRA Paper 28988, University Library of Munich, Germany.
  5. Marto, Ricardo, 2013. "Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model," MPRA Paper 55647, University Library of Munich, Germany.
  6. Romain Houssa & Christopher Otrok & Radu Puslenghea, 2010. "A Model for Monetary Policy Analysis for Sub-Saharan Africa," Open Economies Review, Springer, Springer, vol. 21(1), pages 127-145, February.
  7. Anca Tanasie, 2013. "The Euro Area Crisis Impact On Candidate Countries," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, University of Craiova, Faculty of Economics and Business Administration, vol. 1(41), pages 125-130.
  8. Matus Senaj & Milan Vyskrabka & Juraj Zeman, 2010. "MUSE: Monetary Union and Slovak Economy model," Working and Discussion Papers, Research Department, National Bank of Slovakia WP 1/2010, Research Department, National Bank of Slovakia.

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