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Monetary Policy Analysis with Potentially Misspecified Models

  • Marco Del Negro
  • Frank Schorfheide

Policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models faces two challenges: estimation of parameters that are relevant for policy trade-offs, and treatment of the deviations from the cross-equation restrictions. Using post-1982 US data, we study the robustness of the policy prescriptions from a state-of-the-art DSGE model with respect to two approaches to model misspecification pursued in the recent literature: (i) adding shocks to the DSGE model and/or generalizing the processes followed by these shocks; and (ii) explicit modeling of deviations from cross-equation restrictions (DSGE-VAR). (JEL C51, E13, E43, E52, E58)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 4 (September)
Pages: 1415-50

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:4:p:1415-50
Note: DOI: 10.1257/aer.99.4.1415
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