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Bayesian Estimation of DSGE Models: Is the Workhorse Model Identified?

  • Evren Caglar

    ()

    (University of Kent)

  • Jagjit S. Chadha

    ()

    (University of Kent)

  • Katsuyuki Shibayama

    ()

    (University of Kent)

Koop, Pesaran and Smith (2011) suggest a simple diagnostic indicator for the Bayesian estimation of the parameters of a DSGE model. They show that, if a parameter is well identified, the precision of the posterior should improve as the (artificial) data size T increases, and the indicator checks the speed at which precision improves. It does not require any additional programming; a researcher just needs to generate artificial data and estimate the model with different T. Applying this to Smets and Wouters'(2007) medium size US model, we find that while exogenous shock processes are well identified, most of the parameters in the structural equations are not.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1205.pdf
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Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1205.

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Length: 24 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:koc:wpaper:1205
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  1. Andrle, Michal, 2010. "A note on identification patterns in DSGE models," Working Paper Series 1235, European Central Bank.
  2. Consolo, Agostino & Favero, Carlo A. & Paccagnini, Alessia, 2009. "On the Statistical Identification of DSGE Models," CEPR Discussion Papers 7176, C.E.P.R. Discussion Papers.
  3. Nikolay Iskrev, 2009. "Local Identification in DSGE Models," Working Papers w200907, Banco de Portugal, Economics and Research Department.
  4. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
  5. Marco Ratto, 2008. "Analysing DSGE Models with Global Sensitivity Analysis," Computational Economics, Society for Computational Economics, vol. 31(2), pages 115-139, March.
  6. Marco Ratto & Werner Roeger, 2005. "An estimated open-economy model for the EURO area," Computing in Economics and Finance 2005 84, Society for Computational Economics.
  7. Nikolay Iskrev, 2010. "Parameter identification in Dynamic Economic models," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  8. Iskrev, Nikolay, 2008. "Evaluating the information matrix in linearized DSGE models," Economics Letters, Elsevier, vol. 99(3), pages 607-610, June.
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