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Data Revisions in the Estimation of DSGE Models

  • Casares, Miguel
  • Vázquez Pérez, Jesús

Revisions of US macroeconomic data are not white-noise. They are persistent, correlated with real-time data, and with high variability (around 80% of volatility observed in US real-time data). Their business cycle effects are examined in an estimated DSGE model extended with both real-time and final data. After implementing a Bayesian estimation approach, the role of both habit formation and price indexation fall significantly in the extended model. The results show how revision shocks of both output and inflation are expansionary because they occur when real-time published data are too low and the Fed reacts by cutting interest rates. Consumption revisions, by contrast, are countercyclical as consumption habits mirror the observed reduction in real-time consumption. In turn, revisions of the three variables explain 9.3% of changes of output in its long-run variance decomposition.

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File URL: http://hdl.handle.net/10810/8759
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Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 8759.

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Date of creation: 2012
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Handle: RePEc:ehu:dfaeii:8759
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Order Information: Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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  1. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
  2. Herbst, Edward & Schorfheide, Frank, 2012. "Evaluating DSGE model forecasts of comovements," Journal of Econometrics, Elsevier, vol. 171(2), pages 152-166.
  3. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2008. "A Comparison Of Forecast Performance Between Federal Reserve Staff Forecasts, Simple Reduced-Form Models, And A Dsge Model," CAMA Working Papers 2009-03, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Francis X. Diebold & Glenn D. Rudebusch, 1989. "Forecasting output with the composite leading index: an ex ante analysis," Finance and Economics Discussion Series 90, Board of Governors of the Federal Reserve System (U.S.).
  5. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
  6. Ben S. Bernanke & Julio J. Rotemberg, 1997. "Editorial in "NBER Macroeconomics Annual 1997, Volume 12"," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 1-6 National Bureau of Economic Research, Inc.
  7. Ben S. Bernanke & Julio J. Rotemberg, 1997. "NBER Macroeconomics Annual 1997, Volume 12," NBER Books, National Bureau of Economic Research, Inc, number bern97-1, October.
  8. Corradi, Valentina & Fernandez, Andres & Swanson, Norman R., 2009. "Information in the Revision Process of Real-Time Datasets," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 455-467.
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