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Assessing the Fit of a Small Open-Economy DSGE Model for the Brazilian Economy

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  • Fernando de Menezes Linardi

Abstract

This paper estimates a small open-economy dynamic stochastic general equilibrium (DSGE) model using Brazil´s economy data for the inflation-targeting period. The model includes a number of shocks that are important to explain the macroeconomic fluctuations of emerging markets economies. Then the empirical fit of different specifications of the model is tested in a Bayesian framework. The potential model misspecification is also assessed by comparing it to a more general reference model using the DSGE-VAR approach. The results show that the model with no price indexation fits the data better than the fully specified one. The DSGE-VAR approach indicated some degree of misspecification in the stylized small open-economy model.

Suggested Citation

  • Fernando de Menezes Linardi, 2016. "Assessing the Fit of a Small Open-Economy DSGE Model for the Brazilian Economy," Working Papers Series 424, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:424
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