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Estimating Dynamic Equilibrium Models using Macro and Financial Data

Author

Listed:
  • Bent Jesper Christensen

    () (Aarhus University and CREATES)

  • Olaf Posch

    () (Aarhus University and CREATES)

  • Michel van der Wel

    () (Erasmus University Rotterdam and CREATES)

Abstract

We show that including financial market data at daily frequency, along with macro series at standard lower frequency, facilitates statistical inference on structural parameters in dynamic equilibrium models. Our continuous-time formulation conveniently accounts for the difference in observation frequency. We suggest two approaches for the estimation of structural parameters. The first is a simple regression-based procedure for estimation of the reduced-form parameters of the model, combined with a minimum-distance method for identifying the structural parameters. The second approach uses martingale estimating functions to estimate the structural parameters directly through a non-linear optimization scheme. We illustrate both approaches by estimating the stochastic AK model with mean-reverting spot interest rates. We also provide Monte Carlo evidence on the small sample behavior of the estimators and estimate the model using 20 years of U.S. macro and financial data.

Suggested Citation

  • Bent Jesper Christensen & Olaf Posch & Michel van der Wel, 2011. "Estimating Dynamic Equilibrium Models using Macro and Financial Data," CREATES Research Papers 2011-21, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:create:2011-21
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    File URL: ftp://ftp.econ.au.dk/creates/rp/11/rp11_21.pdf
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    Cited by:

    1. Giannone, Domenico & Monti, Francesca & Reichlin, Lucrezia, 2016. "Exploiting the monthly data flow in structural forecasting," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 201-215.
    2. Claudia Foroni & Massimiliano Marcellino, 2013. "Mixed frequency structural models: estimation, and policy analysis," Working Paper 2013/15, Norges Bank.

    More about this item

    Keywords

    Structural estimation; AK-Vasicek model; Martingale estimating function;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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