Evaluating Dynamic Stochastic General Equilibrium Models using Likelihood

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Evaluating Dynamic Stochastic General Equilibrium Models using Likelihood

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John Landon-Lane () (Rutgers University)

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John Stanley Landon-Lane

Abstract

This paper develops a method that uses a likelihood approach to directly compare two or more non-nested dynamic, stochastic general equilibrium (DSGE) models. It is shown how DSGE models can be compared across the whole sample and how this measure can be decomposed across individual observations thus allowing models to be compared across any sub-sample of the data. The method is applied to the problem of determining whether the technology shock process in a standard Real Business Cycle model should consist of permanent or temporary, albeit persistent, shocks. Overall, a permanent shock model has a better prediction performance than the temporary shock model. However, the model with the temporary shock performs much better for the part of the sample that includes the most of the 1980's and the 1990's.

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200211.

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Date of creation: 17 Jun 2002
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Handle: RePEc:rut:rutres:200211

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

Cited by:
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Fabio Milani, 2005. "Expectations, Learning and Macroeconomic Persistence," Working Papers 050608, University of California-Irvine, Department of Economics. [Downloadable!]
Other versions:
- Fabio Milani, 2005. "Expectations, Learning and Macroeconomic Persistence," Macroeconomics 0510022, EconWPA. [Downloadable!]
- Milani, Fabio, 2007. "Expectations, learning and macroeconomic persistence," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 2065-2082, October. [Downloadable!] (restricted)

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This page was last updated on 2009-11-21.

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