IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Estimating Macroeconomic Models: A Likelihood Approach

  • Jesus Fernandez-Villaverde
  • Juan F. Rubio-Ramirez

This paper shows how particle filtering allows us to undertake likelihood-based inference in dynamic macroeconomic models. The models can be nonlinear and/or non-normal. We describe how to use the output from the particle filter to estimate the structural parameters of the model, those characterizing preferences and technology, and to compare different economies. Both tasks can be implemented from either a classical or a Bayesian perspective. We illustrate the technique by estimating a business cycle model with investment-specific technological change, preference shocks, and stochastic volatility.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/t0321.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0321.

as
in new window

Length:
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:nbr:nberte:0321
Note: TWP
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
  2. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal Fiscal Policy in a Business Cycle Model," NBER Working Papers 4490, National Bureau of Economic Research, Inc.
  3. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  4. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford.
  5. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  6. Ellen R. McGrattan & Edward C. Prescott, 2001. "Is the Stock Market Overvalued?," NBER Working Papers 8077, National Bureau of Economic Research, Inc.
  7. Daniel McFadden, 1987. "A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Working papers 464, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. John Geweke, 1992. "Priors for macroeconomic time series and their application," Discussion Paper / Institute for Empirical Macroeconomics 64, Federal Reserve Bank of Minneapolis.
  9. Jesús Fernández-Villaverde & Juan Francisco Rubio-Ramírez, 2004. "Estimating dynamic equilibrium economies: linear versus nonlinear likelihood," Working Paper 2004-3, Federal Reserve Bank of Atlanta.
  10. Alejandro Justiniano & Giorgio E. Primiceri, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," NBER Working Papers 12022, National Bureau of Economic Research, Inc.
  11. Francis X. Diebold & Lee E. Ohanian & Jeremy Berkowitz, 1997. "Dynamic equilibrium economies: a framework for comparing models and data," Finance and Economics Discussion Series 1997-23, Board of Governors of the Federal Reserve System (U.S.).
  12. Sangjoon Kim & Neil Shephard, 1994. "Stochastic volatility: likelihood inference and comparison with ARCH models," Economics Papers 3., Economics Group, Nuffield College, University of Oxford.
  13. Carrasco, Marine & Florens, Jean-Pierre, 2002. "Simulation-Based Method of Moments and Efficiency," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 482-92, October.
  14. Pitt, Michael K, 2002. "Smooth Particle Filters for Likelihood Evaluation and Maximisation," The Warwick Economics Research Paper Series (TWERPS) 651, University of Warwick, Department of Economics.
  15. Watson, Mark W, 1993. "Measures of Fit for Calibrated Models," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1011-41, December.
  16. Harald Uhlig, 1997. "Bayesian Vector Autoregressions with Stochastic Volatility," Econometrica, Econometric Society, vol. 65(1), pages 59-74, January.
  17. John Geweke, 1999. "Using simulation methods for bayesian econometric models: inference, development,and communication," Econometric Reviews, Taylor & Francis Journals, vol. 18(1), pages 1-73.
  18. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
  19. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
  20. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  21. repec:cup:etheor:v:10:y:1994:i:3-4:p:609-32 is not listed on IDEAS
  22. Laroque, Guy & Salanie, Bernard, 1989. "Estimation of Multi-market Fix-Price Models: An Application of Pseudo Maximum Likelihood Methods," Econometrica, Econometric Society, vol. 57(4), pages 831-60, July.
  23. Chris Otrok, 1999. "On Measuring the Welfare Cost of Business Cycles," Virginia Economics Online Papers 318, University of Virginia, Department of Economics.
  24. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
  25. Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
  26. Smets, Frank & Wouters, Rafael, 2004. "Comparing Shocks and Frictions in US and Euro Area Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 4750, C.E.P.R. Discussion Papers.
  27. Christopher A. Sims & Tao Zha, 2005. "Were There Regime Switches in U.S. Monetary Policy?," Working Papers 92, Princeton University, Department of Economics, Center for Economic Policy Studies..
  28. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez & Thomas J. Sargent & Mark W. Watson, 2007. "ABCs (and Ds) of Understanding VARs," American Economic Review, American Economic Association, vol. 97(3), pages 1021-1026, June.
  29. Sims, Christopher A & Uhlig, Harald, 1991. "Understanding Unit Rooters: A Helicopter Tour," Econometrica, Econometric Society, vol. 59(6), pages 1591-99, November.
  30. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  31. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  32. Jesús Fernández-Villaverde & Juan Francisco Rubio-Ramírez & Manuel Santos, 2004. "Convergence properties of the likelihood of computed dynamic models," Working Paper 2004-27, Federal Reserve Bank of Atlanta.
  33. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.
  34. Imbens, G.W. & Johnson, P. & Spady, R.H., 1995. "Information Theoretic Approaches to Inference in Movement Condition Models," Economics Papers 99, Economics Group, Nuffield College, University of Oxford.
  35. Judd, Kenneth L. & Guu, Sy-Ming, 1997. "Asymptotic methods for aggregate growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 21(6), pages 1025-1042, June.
  36. DeJong, David N. & Ingram, Beth F. & Whiteman, Charles H., 2000. "A Bayesian approach to dynamic macroeconomics," Journal of Econometrics, Elsevier, vol. 98(2), pages 203-223, October.
  37. Godsill, Simon J. & Doucet, Arnaud & West, Mike, 2004. "Monte Carlo Smoothing for Nonlinear Time Series," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 156-168, January.
  38. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  39. Miranda, Mario J. & Rui, Xiongwen, 1997. "Maximum likelihood estimation of the nonlinear rational expectations asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1493-1510, June.
  40. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series 10, Institute for Advanced Studies.
  41. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
  42. Manuel S. Santos & Adrian Peralta-Alva, 2003. "Accuracy of Simulations for Stochastic Dynamic Models," Levine's Bibliography 666156000000000264, UCLA Department of Economics.
  43. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  44. Fermanian, Jean-David & Salani , Bernard, 2004. "A Nonparametric Simulated Maximum Likelihood Estimation Method," Econometric Theory, Cambridge University Press, vol. 20(04), pages 701-734, August.
  45. Yuichi Kitamura & Michael Stutzer, 1997. "An Information-Theoretic Alternative to Generalized Method of Moments Estimation," Econometrica, Econometric Society, vol. 65(4), pages 861-874, July.
  46. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, vol. 44(1), pages 91-115, January.
  47. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  48. Sargent, Thomas J, 1989. "Two Models of Measurements and the Investment Accelerator," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 251-87, April.
  49. John H. Cochrane & Lars Peter Hansen, 1992. "Asset Pricing Explorations for Macroeconomics," NBER Working Papers 4088, National Bureau of Economic Research, Inc.
  50. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De.
  51. Altug, Sumru, 1989. "Time-to-Build and Aggregate Fluctuations: Some New Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 889-920, November.
  52. S. B. Aruoba & Jesús Fernández-Villaverde & Juan F. Rubio-Ramirez, 2005. "Comparing Solution Methods for Dynamic Equilibrium Economies," Levine's Bibliography 122247000000000855, UCLA Department of Economics.
  53. Ellen R. McGrattan, 1998. "Application of weighted residual methods to dynamic economic models," Staff Report 232, Federal Reserve Bank of Minneapolis.
  54. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  55. Laroque, Guy & Salanie, B, 1993. "Simulation-Based Estimation of Models with Lagged Latent Variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S119-33, Suppl. De.
  56. Viktor Winschel, 2005. "Solving, Estimating and Selecting Nonlinear Dynamic Economic Models without the Curse of Dimensionality," GE, Growth, Math methods 0507014, EconWPA.
  57. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
  58. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-39, November.
  59. repec:fth:inseep:9315 is not listed on IDEAS
  60. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
  61. Tanizaki, Hisashi & Mariano, Roberto S, 1994. "Prediction, Filtering and Smoothing in Non-linear and Non-normal Cases Using Monte Carlo Integration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(2), pages 163-79, April-Jun.
  62. Douglas Rivers & Quang Vuong, 2002. "Model selection tests for nonlinear dynamic models," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 1-39, June.
  63. Michael K Pitt & Neil Shephard, . "Filtering via simulation: auxiliary particle filters," Economics Papers 1997-W13, Economics Group, Nuffield College, University of Oxford.
  64. Lee, Bong-Soo & Ingram, Beth Fisher, 1991. "Simulation estimation of time-series models," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 197-205, February.
  65. Monfort, Alain, 1996. "A Reappraisal of Misspecified Econometric Models," Econometric Theory, Cambridge University Press, vol. 12(04), pages 597-619, October.
  66. Laroque, Guy & Salanie, Bernard, 1994. "Estimating the canonical disequilibrium model : Asymptotic theory and finite sample properties," Journal of Econometrics, Elsevier, vol. 62(2), pages 165-210, June.
  67. Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 123(1), pages 153-187, November.
  68. Guido W Imbens, Phillip Johnson & Richard H Spady, . "Information theoretic approaches to inference in moment condition model," Economics Papers W12., Economics Group, Nuffield College, University of Oxford.
  69. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 9-56.
  70. Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670.
  71. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberte:0321. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.