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Comparing dynamic equilibrium economies to data

  • Jesus Fernández-Villaverde
  • Juan F. Rubio-Ramírez

This paper studies the properties of the Bayesian approach to estimation and comparison of dynamic equilibrium economies. Both tasks can be performed even if the models are nonnested, misspecified, and nonlinear. First, the authors show that Bayesian methods have a classical interpretation: asymptotically the parameter point estimates converge to their pseudotrue values, and the best model under the Kullback-Leibler will have the highest posterior probability. Second, they illustrate the strong small sample behavior of the approach using a well-known application: the U.S. cattle cycle. Bayesian estimates outperform maximum likelihood results, and the proposed model is easily compared with a set of BVARs.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2001-23.

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Date of creation: 2001
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Handle: RePEc:fip:fedawp:2001-23
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  7. Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2004. "Estimating Nonlinear Dynamic Equilibrium economies: A Likelihood Approach," PIER Working Paper Archive 04-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. John Geweke, 1998. "Using simulation methods for Bayesian econometric models: inference, development, and communication," Staff Report 249, Federal Reserve Bank of Minneapolis.
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  17. Otrok, Christopher, 2001. "On measuring the welfare cost of business cycles," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 61-92, February.
  18. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
  19. DeJong, David N. & Ingram, Beth F. & Whiteman, Charles H., 2000. "A Bayesian approach to dynamic macroeconomics," Journal of Econometrics, Elsevier, vol. 98(2), pages 203-223, October.
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