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

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  • Martínez-García, Enrique

    () (Federal Reserve Bank of Dallas)

  • Vilán, Diego
  • Wynne, Mark A.

    () (Federal Reserve Bank of Dallas)

Abstract

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.

Suggested Citation

  • Martínez-García, Enrique & Vilán, Diego & Wynne, Mark A., 2012. "Bayesian estimation of NOEM models: identification and inference in small samples," Globalization and Monetary Policy Institute Working Paper 105, Federal Reserve Bank of Dallas, revised 01 Mar 2012.
  • 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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    File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0105.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Enrique Martínez-García, 2015. "The Global Component of Local Inflation: Revisiting the Empirical Content of the Global Slack Hypothesis with Bayesian Methods," International Symposia in Economic Theory and Econometrics,in: Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons, volume 24, pages 51-112 Emerald Publishing Ltd.
    2. Stan du Plessis & Ben Smit & Rudi Steinbach, 2014. "Working Paper – WP/14/04- A medium-sized open economy DSGE model of South Africa," Working Papers 6319, South African Reserve Bank.
    3. Enrique Martínez-García & Mark A. Wynne, 2014. "Assessing Bayesian Model Comparison in Small Samples," Advances in Econometrics,in: Bayesian Model Comparison, volume 34, pages 71-115 Emerald Publishing Ltd.

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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