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How Structural Are Structural Parameters?

Listed author(s):
  • Jesús Fernández-Villaverde
  • Juan F. Rubio-Ramírez

This paper studies how stable over time are the so-called "structural parameters" of dynamic stochastic general equilibrium (DSGE) models. To answer this question, we estimate a medium-scale DSGE model with real and nominal rigidities using U.S. data. In our model, we allow for parameter drifting and rational expectations of the agents with respect to this drift. We document that there is strong evidence that parameters change within our sample. We illustrate variations in the parameters describing the monetary policy reaction function and in the parameters characterizing the pricing behavior of firms and households. Moreover, we show how the movements in the pricing parameters are correlated with inflation. Thus, our results cast doubts on the empirical relevance of Calvo models.

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File URL: http://www.nber.org/papers/w13166.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13166.

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Date of creation: Jun 2007
Publication status: published as How Structural Are Structural Parameters? , Jesús Fernández-Villaverde, Juan F. Rubio-Ramírez. in NBER Macroeconomics Annual 2007, Volume 22 , Acemoglu, Rogoff, and Woodford. 2008
Handle: RePEc:nbr:nberwo:13166
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