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Bayesian estimation of DSGE models: Identification using a diagnostic indicator

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  • Chadha, Jagjit S.
  • Shibayama, Katsuyuki

Abstract

Koop et al. (2013) suggest a simple diagnostic indicator for the Bayesian estimation of the parameters of a DSGE model. They show that, if a parameter is well identified, the precision of the posterior should improve as the (artificial) data size T increases, and the indicator checks the speed at which precision improves. As it does not require any additional programming, a researcher just needs to generate artificial data and estimate the model with increasing sample size, T. We apply this indicator to the benchmark Smets and Wouters (2007) DSGE model of the US economy, and suggest how to implement this indicator on DSGE models.

Suggested Citation

  • Chadha, Jagjit S. & Shibayama, Katsuyuki, 2018. "Bayesian estimation of DSGE models: Identification using a diagnostic indicator," Journal of Economic Dynamics and Control, Elsevier, vol. 95(C), pages 172-186.
    • Handle: RePEc:eee:dyncon:v:95:y:2018:i:c:p:172-186
    DOI: 10.1016/j.jedc.2018.08.005
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    1. repec:ptu:bdpart:b201012 is not listed on IDEAS
    2. Iskrev, Nikolay, 2008. "Evaluating the information matrix in linearized DSGE models," Economics Letters, Elsevier, vol. 99(3), pages 607-610, June.
    3. Canova, Fabio & Sala, Luca, 2009. "Back to square one: Identification issues in DSGE models," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 431-449, May.
    4. Iskrev, Nikolay, 2010. "Local identification in DSGE models," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 189-202, March.
    5. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    6. Gary Koop & M. Hashem Pesaran & Ron P. Smith, 2013. "On Identification of Bayesian DSGE Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 31(3), pages 300-314, July.
    7. Ratto, Marco & Roeger, Werner & Veld, Jan in 't, 2009. "QUEST III: An estimated open-economy DSGE model of the euro area with fiscal and monetary policy," Economic Modelling, Elsevier, vol. 26(1), pages 222-233, January.
    8. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Springer;Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
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    Cited by:

    1. Xu, Xin & Xu, Xiaoguang, 2023. "Monetary policy transmission modeling and policy responses," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    2. Ivashchenko, Sergey & Mutschler, Willi, 2020. "The effect of observables, functional specifications, model features and shocks on identification in linearized DSGE models," Economic Modelling, Elsevier, vol. 88(C), pages 280-292.
    3. Pedro Chaim & Márcio Poletti Laurini, 2022. "Data Cloning Estimation and Identification of a Medium-Scale DSGE Model," Stats, MDPI, vol. 6(1), pages 1-13, December.

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    More about this item

    Keywords

    Bayesian estimation; Dynamic stochastic general equilibrium models; Identification;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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