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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 FRB Atlanta Working Paper No. with number 2001-23.

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Date of creation: 2001
Date of revision:
Handle: RePEc:fip:fedawp:2001-23
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  15. Chris Otrok, 1999. "On Measuring the Welfare Cost of Business Cycles," Virginia Economics Online Papers 318, University of Virginia, Department of Economics.
  16. 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.
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