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Policy predictions if the model doesn’t fit

Author

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  • Marco Del Negro
  • Frank Schorfheide

Abstract

This paper uses a novel method for conducting policy analysis with potentially misspecified DSGE models (Del Negro and Schorfheide 2004) and applies it to a simple New Keynesian DSGE model. We illustrate the sensitivity of the results to assumptions on the policy invariance of model misspecifications.

Suggested Citation

  • Marco Del Negro & Frank Schorfheide, 2004. "Policy predictions if the model doesn’t fit," FRB Atlanta Working Paper 2004-38, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2004-38
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    File URL: http://www.frbatlanta.org/filelegacydocs/wp0438.pdf
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    References listed on IDEAS

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    1. Alexei Onatski & Noah Williams, 2004. "Empirical and policy performance of a forward-looking monetary model," Proceedings, Federal Reserve Bank of San Francisco.
    2. Del Negro, Marco & Schorfheide, Frank, 2005. "Monetary policy analysis with potentially misspecified models," Working Paper Series 475, European Central Bank.
    3. repec:cup:macdyn:v:6:y:2002:i:1:p:85-110 is not listed on IDEAS
    4. Marco Del Negro & Frank Schorfheide, 2009. "Monetary Policy Analysis with Potentially Misspecified Models," American Economic Review, American Economic Association, pages 1415-1450.
    5. Alexei Onatski & James H. Stock, 1999. "Robust monetary policy under model uncertainty in a small model of the U.S. economy," Proceedings, Federal Reserve Bank of San Francisco.
    6. Alexei Onatski & Noah Williams, 2010. "Empirical and policy performance of a forward-looking monetary model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 145-176.
    7. Marco Del Negro & Frank Schorfheide & Frank Smets & Raf Wouters, 2004. "On the fit and forecasting performance of New Keynesian models," FRB Atlanta Working Paper 2004-37, Federal Reserve Bank of Atlanta.
    8. Onatski, Alexei & Stock, James H., 2002. "Robust Monetary Policy Under Model Uncertainty In A Small Model Of The U.S. Economy," Macroeconomic Dynamics, Cambridge University Press, pages 85-110.
    9. Marco Del Negro & Frank Schorfheide, 2004. "Priors from General Equilibrium Models for VARS," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 643-673, May.
    10. Ingram, Beth F. & Whiteman, Charles H., 1994. "Supplanting the 'Minnesota' prior: Forecasting macroeconomic time series using real business cycle model priors," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 497-510, December.
    11. Onatski, Alexei & Stock, James H., 2002. "Robust Monetary Policy Under Model Uncertainty In A Small Model Of The U.S. Economy," Macroeconomic Dynamics, Cambridge University Press, pages 85-110.
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    Citations

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    Cited by:

    1. Jansen, Eilev S., 2004. "Modelling inflation in the euro area," Working Paper Series 322, European Central Bank.
    2. Marco Del Negro & Frank Schorfheide, 2009. "Monetary Policy Analysis with Potentially Misspecified Models," American Economic Review, American Economic Association, pages 1415-1450.
    3. Del Negro, Marco & Schorfheide, Frank, 2005. "Monetary policy analysis with potentially misspecified models," Working Paper Series 475, European Central Bank.
    4. Dufour, Jean-Marie & Khalaf, Lynda & Kichian, Maral, 2010. "On the precision of Calvo parameter estimates in structural NKPC models," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1582-1595, September.
    5. Andrea Carriero, 2011. "Forecasting The Yield Curve Using Priors From No‐Arbitrage Affine Term Structure Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 425-459, May.
    6. Marco Del Negro & Frank Schorfheide, 2009. "Monetary Policy Analysis with Potentially Misspecified Models," American Economic Review, American Economic Association, pages 1415-1450.
    7. Brock, William A. & Durlauf, Steven N. & West, Kenneth D., 2007. "Model uncertainty and policy evaluation: Some theory and empirics," Journal of Econometrics, Elsevier, pages 629-664.
    8. Fabio Canova, 2007. "How much structure in empirical models?," Economics Working Papers 1054, Department of Economics and Business, Universitat Pompeu Fabra.
    9. Stephen Cole & Fabio Milani, 2014. "The Misspecification of Expectations in New Keynesian Models: A DSGE-VAR Approach," Working Papers 131407, University of California-Irvine, Department of Economics.
    10. Stephen Cole & Fabio Milani, 2014. "The Misspecification of Expectations in New Keynesian Models: A DSGE-VAR Approach," Working Papers 131407, University of California-Irvine, Department of Economics.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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