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Bayesian Dynamic Factor Analysis of a Simple Monetary DSGE Model


  • Maxym Kryshko


When estimating DSGE models, the number of observable economic variables is usually kept small, and it is conveniently assumed that DSGE model variables are perfectly measured by a single data series. Building upon Boivin and Giannoni (2006), we relax these two assumptions and estimate a fairly simple monetary DSGE model on a richer data set. Using post-1983 on real output, inflation, nominal interest rates, measures of inverse money velocity, and a large panel of informational series, we compare the data-rich DSGE model with the regular - few observables, perfect measurement - DSGE model in terms of deep parameter estimates, propagation of monetary policy and technology shocks and sources of business cycle fluctuations. We document that the data-rich DSGE model generates a higher implied duration of Calvo price contracts and a lower slope of the New Keynesian Phillips curve. To reduce the computational costs of the likelihood-based estimation, we employed a novel speedup as in Jungbacker and Koopman (2008) and achieved the time savings of 60 percent.

Suggested Citation

  • Maxym Kryshko, 2011. "Bayesian Dynamic Factor Analysis of a Simple Monetary DSGE Model," IMF Working Papers 11/219, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/219

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    References listed on IDEAS

    1. Demirgüç-Kunt, AslI & Detragiache, Enrica & Tressel, Thierry, 2008. "Banking on the principles: Compliance with Basel Core Principles and bank soundness," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 511-542, October.
    2. Richard Podpiera, 2006. "Does Compliance with Basel Core Principles Bring Any Measurable Benefits?," IMF Staff Papers, Palgrave Macmillan, vol. 53(2), pages 1-5.
    3. Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 47-67, February.
    4. Martin Čihák & Alexander Tieman, 2011. "Quality of Financial Sector Regulation and Supervision Around the World," Chapters,in: Handbook of Central Banking, Financial Regulation and Supervision, chapter 15 Edward Elgar Publishing.
    5. Richard Podpiera, 2004. "Does Compliance with Basel Core Principles Bring Any Measurable Benefits?," IMF Working Papers 04/204, International Monetary Fund.
    6. Dewitt D Marston, 2001. "Financial System Standards and Financial Stability; The Case of the Basel Core Principles," IMF Working Papers 01/62, International Monetary Fund.
    7. Kashyap, Anil K. & Rajan, Raghuram G. & Stein, Jeremy C., 2008. "Rethinking capital regulation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 431-471.
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    Cited by:

    1. Maxym Kryshko, 2011. "Data-Rich DSGE and Dynamic Factor Models," IMF Working Papers 11/216, International Monetary Fund.


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