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Bayesian estimation of NOEM models: identification and inference in small samples

  • Martínez-García, Enrique


    (Federal Reserve Bank of Dallas)

  • Vilán, Diego
  • Wynne, Mark A.


    (Federal Reserve Bank of Dallas)

This paper studies the (potential) weak identification of these relationships in the context of a fully specified structural model using Bayesian estimation techniques. We trace the problems to sample size, rather than misspecification bias. We conclude that standard macroeconomic time series with a coverage of less than forty years are subject to potentially serious identification issues, and also to model selection errors. We recommend estimation with simulated data prior to bringing the model to the actual data as a way of detecting parameters that are susceptible to weak identification in short samples.

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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 105.

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Length: 88 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:fip:feddgw:105
Note: Published as: Martínez-García, Enrique, Diego Vilán and Mark A. Wynne (2012), "Bayesian Estimation of NOEM Models: Identification and Inference in Small Samples," in DSGE Models in Macroeconomics: Estimation, Evaluation, and New Development, ed. Nathan Balke, Fabio Canova, Fabio Milani and Mark A. Wynne (Bingley, UK: Emerald Group Publishing Limited), 137-199.
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