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Optimal Monetary Policy in a Medium Scale Model for Emerging Markets


Author Info

  • Eric R. Young

    (University of Virginia)

  • Christopher Otrok

    (University of Virginia)

  • Alessandro Rebucci

    (International Monetary Fund)

  • Gianluca Benigno

    (London School of Economics)


To establish that our model is a reasonable description of the data we estimate the model using Bayesian methods and then evaluate its fit along a number of standard dimensions. The Bayesian approach to estimating the model parameters is especially important for providing discipline on the parameters in the financial friction and nominal rigidities. As a technical contribution, we estimate the model using non-linear likelihood methods based on the “particle” filter. Since the model itself is inherently nonlinear, it cannot be solved using a linear approximation, nor it is appropriate to use a linear approximation to the likelihood function. To our knowledge this paper is the first likelihood-based empirical assessment of sudden stop models.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 373.

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Date of creation: 2007
Date of revision:
Handle: RePEc:red:sed007:373

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
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