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What you match does matter: the effects of data on DSGE estimation

  • Pablo A. Guerron-Quintana

    (Department of Economics, North Carolina State University, Raleigh, NC, USA)

This paper explores the effects of using alternative combinations of observables for the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. I find that the estimation of structural parameters describing the Taylor rule and sticky contracts in prices and wages is particularly sensitive to the set of observables. In terms of the model's predictions, the exclusion of some observables may lead to estimated parameters with unexpected outcomes, such as recessions following a positive technology shock. More importantly, two ways to assess different sets of observables are proposed. These measures favor a dataset consisting of seven observables. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1106
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File URL: http://qed.econ.queensu.ca:80/jae/2010-v25.5/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 25 (2010)
Issue (Month): 5 ()
Pages: 774-804

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Handle: RePEc:jae:japmet:v:25:y:2010:i:5:p:774-804
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  6. 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.
  7. Marco Del Negro & Frank Schorfheide, 2009. "Monetary Policy Analysis with Potentially Misspecified Models," American Economic Review, American Economic Association, vol. 99(4), pages 1415-50, September.
  8. Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 123(1), pages 153-187, November.
  9. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  10. Jesús Fernández-Villaverde & Juan F. Rubio-Ramirez, 2006. "Estimating Macroeconomic Models: A Likelihood Approach," Levine's Bibliography 122247000000000849, UCLA Department of Economics.
  11. Ireland, Peter N., 2004. "A method for taking models to the data," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1205-1226, March.
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  16. Marc P. Giannoni & Jean Boivin, 2005. "DSGE Models in a Data-Rich Environment," Computing in Economics and Finance 2005 431, Society for Computational Economics.
  17. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  18. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999 1151, Society for Computational Economics.
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