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Estimation of DSGE Models With the Effective Lower Bound

Author

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  • Gregor Boehl, Felix Strobel

Abstract

We propose a set of tools for the efficient and robust Bayesian estimation of medium- and large-scale DSGE models while accounting for the effective lower bound on nominal interest rates. We combine a novel nonlinear recursive filter with a computationally efficient piece-wise linear solution method and a state-of-the-art MCMC sampler. The filter allows for fast likelihood approximations, in particular of models with large state spaces. Using artificial data, we demonstrate that our methods accurately capture the true model parameters even with very long lower bound episodes. We apply our approach to analyze post-2008 US business cycle properties.

Suggested Citation

  • Gregor Boehl, Felix Strobel, 2022. "Estimation of DSGE Models With the Effective Lower Bound," CRC TR 224 Discussion Paper Series crctr224_2022_356, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2022_356
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp356
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    Cited by:

    1. Boehl, Gregor & Strobel, Felix, 2024. "The empirical performance of the financial accelerator since 2008," Journal of Economic Dynamics and Control, Elsevier, vol. 167(C).
    2. Dominik Hecker & Maik Wolters & Maik H. Wolters, 2025. "Nonlinear Estimation of a New Keynesian Model with Endogenous Inflation De-Anchoring," CESifo Working Paper Series 12280, CESifo.
    3. Boehl, Gregor & Lieberknecht, Philipp, 2025. "The hockey stick Phillips curve and the effective lower bound," Journal of Economic Dynamics and Control, Elsevier, vol. 170(C).
    4. Oliver de Groot & Ceyhun Bora Durdu & Enrique G. Mendoza, 2023. "Why Global and Local Solutions of Open-Economy Models with Incomplete Markets Differ and Why it Matters," NBER Working Papers 31544, National Bureau of Economic Research, Inc.
    5. Gregor Boehl & Flora Budianto & Elod Takats, 2024. "The macroeconomics of green transitions," BIS Working Papers 1237, Bank for International Settlements.
    6. Khalil, Makram & Strobel, Felix, 2024. "US trade policy and the US dollar," Journal of International Economics, Elsevier, vol. 151(C).

    More about this item

    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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