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How Structural Are Structural Parameters?

Listed author(s):
  • Jesús Fernández-Villaverde
  • Juan F Rubio-Ramírez

This paper studies how stable over time are the so-called "structural parameters" of dynamic stochastic general equilibrium (DSGE) models. To answer this question, we estimate a medium-scale DSGE model with real and nominal rigidities using U.S. data. In our model, we allow for parameter drifting and rational expectations of the agents with respect to this drift. We document that there is strong evidence that parameters change within our sample. We illustrate variations in the parameters describing the monetary policy reaction function and in the parameters characterizing the pricing behavior of firms and households. Moreover, we show how the movements in the pricing parameters are correlated with inflation. Thus, our results cast doubts on the empirical relevance of Calvo models.

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File URL: http://www.econ.upenn.edu/~jesusfv/NBERMacroAnnual.pdf
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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 843644000000000057.

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Date of creation: 22 Jul 2007
Handle: RePEc:cla:levrem:843644000000000057
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