IDEAS home Printed from https://ideas.repec.org/p/ost/wpaper/276.html
   My bibliography  Save this paper

Testing for Parameter Stability in DSGE Models. The Cases of France, Germany and Spain

Author

Listed:
  • Jürgen Jerger

    (Osteuropa-Institut, Regensburg (Institut for East European Studies))

  • Oke Röhe

    (University of Regensburg)

Abstract

We estimate a New Keynesian DSGE model on French, German and Spanish data. The main aim of this paper is to check for the respective sets of parameters that are stable over time, making use of the ESS procedure (”Estimate of Set of Stable parameters“) developed by Inoue and Rossi (2011). This new econometric technique allows to address the stability properties of each single parameter in a DSGE model separately. In the case of France and Germany our results point to structural breaks after the beginning of the second stage of EMU in the mid-nineties, while the estimates for Spain show a significant break just before the start of the third stage in 1998. Specifically, there are significant changes in monetary policy behavior for France and Spain, while monetary policy in Germany seems to be stable over time.

Suggested Citation

  • Jürgen Jerger & Oke Röhe, 2009. "Testing for Parameter Stability in DSGE Models. The Cases of France, Germany and Spain," Working Papers 276, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies), revised Mar 2011.
    • Handle: RePEc:ost:wpaper:276
    Note: Paper was previously circulated as the OEI Working Paper 276 under the title "The Macroeconomic Consequences of EMU : International Evidence from a DSGE Model"
    as

    Download full text from publisher

    File URL: http://epub.uni-regensburg.de/20060/1/JergerRoehe_453.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fabio Canova, 2007. "Bayesian Time Series and DSGE Models, from Methods for Applied Macroeconomic Research," Introductory Chapters, in: Methods for Applied Macroeconomic Research, Princeton University Press.
    2. Marcel Fratzscher & Livio Stracca, 2009. "The political economy under monetary union: has the euro made a difference? [‘Income distribution, political instability, and investment’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(58), pages 307-348.
    3. David N. DeJong & Chetan Dave, 2007. "Implementing Nonlinear Appoximations Empirically, from Structural Macroeconometrics," Introductory Chapters, in: Structural Macroeconometrics, Princeton University Press.
    4. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(1), pages 147-180.
    5. Marek Jarocinski, 2010. "Responses to monetary policy shocks in the east and the west of Europe: a comparison," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 833-868.
    6. Cukierman, Alex & Lippi, Francesco, 2001. "Labour Markets and Monetary Union: A Strategic Analysis," Economic Journal, Royal Economic Society, vol. 111(473), pages 541-565, July.
    7. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2010. "Investment shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 132-145, March.
    8. Benjamin Keen & Yongsheng Wang, 2007. "What is a realistic value for price adjustment costs in New Keynesian models?," Applied Economics Letters, Taylor & Francis Journals, vol. 14(11), pages 789-793.
    9. Gregory de Walque & Frank Smets & Raf Wouters, 2006. "Price Shocks in General Equilibrium: Alternative Specifications," CESifo Economic Studies, CESifo Group, vol. 52(1), pages 153-176, March.
    10. repec:onb:oenbwp:y::i:157:b:1 is not listed on IDEAS
    11. Pablo Burriel & Jesús Fernández-Villaverde & Juan Rubio-Ramírez, 2010. "MEDEA: a DSGE model for the Spanish economy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 175-243, March.
    12. Sven Langedijk & Werner Roeger, 2007. "Adjustment in EMU: A model-based analysis of country experiences," European Economy - Economic Papers 2008 - 2015 274, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    13. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    14. Frank Smets & Raf Wouters, 2005. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 161-183.
    15. Obstfeld, Maurice, 2002. "Exchange Rates and Adjustment: Perspectives from the New Open- Economy Macroeconomics," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 23-46, December.
    16. Neiss, Katharine S. & Nelson, Edward, 2003. "The Real-Interest-Rate Gap As An Inflation Indicator," Macroeconomic Dynamics, Cambridge University Press, vol. 7(2), pages 239-262, April.
    17. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    18. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
    19. Ireland, Peter N., 2001. "Sticky-price models of the business cycle: Specification and stability," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 3-18, February.
    20. Michael Ehrmann & Leonardo Gambacorta & Jorge Martinez-PagÈs & Patrick Sevestre & Andreas Worms, 2003. "The Effects of Monetary Policy in the Euro Area," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(1), pages 58-72.
    21. C. Moons & A. Van Poeck, 2007. "Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members," Applied Economics, Taylor & Francis Journals, vol. 40(2), pages 193-199.
    22. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2009. "New Keynesian Models: Not Yet Useful for Policy Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 242-266, January.
    23. Arghyrou, Michael G. & Gadea, Maria Dolores, 2012. "The single monetary policy and domestic macro-fundamentals: Evidence from Spain," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 16-34.
    24. Javier Andrés & J. David López-Salido & Javier Vallés, 2006. "Money in an Estimated Business Cycle Model of the Euro Area," Economic Journal, Royal Economic Society, vol. 116(511), pages 457-477, April.
    25. Ricardo Reis, 2009. "Optimal Monetary Policy Rules in an Estimated Sticky-Information Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 1-28, July.
    26. Popov, Alexander & Ongena, Steven, 2011. "Interbank market integration, loan rates, and firm leverage," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 544-559, March.
    27. Lee, Jim, 2009. "Evaluating monetary policy of the euro area with cross-country heterogeneity: Evidence from a New Keynesian model," Economic Systems, Elsevier, vol. 33(4), pages 325-343, December.
    28. van Aarle, Bas & Garretsen, Harry & van Moorsel, Cornelie, 2001. "Internal and external transmissions of monetary and fiscal policies in the EMU," Economic Systems, Elsevier, vol. 25(2), pages 127-148, June.
    29. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    30. Browne, F.X. & Fagan, G. & Henry, J., 1997. "Money Demand in EU Countries : A Survey," Papers 7, European Monetary Institute.
    31. Fabio Milani, 2009. "Adaptive Learning and Macroeconomic Inertia in the Euro Area," Journal of Common Market Studies, Wiley Blackwell, vol. 47(3), pages 579-599, June.
    32. Jean‐Guillaume Sahuc & Frank Smets, 2008. "Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium‐Scale DSGE Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 505-521, March.
    33. Andrew Hughes Hallett & Christian Richter, 2009. "Has there been any structural convergence in the transmission of European monetary policies?," International Economics and Economic Policy, Springer, vol. 6(2), pages 85-101, July.
    34. Riccardo DiCecio & Edward Nelson, 2007. "An estimated DSGE model for the United Kingdom," Review, Federal Reserve Bank of St. Louis, vol. 89(Jul), pages 215-232.
    35. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
    36. Baudry, L. & Le Bihan, H. & Sevestre, P. & Tarrieu, S., 2004. "Price Rigidity. Evidence from the French CPI Macro-Data," Working papers 113, Banque de France.
    37. Jerger, Jurgen, 2002. "Socially optimal monetary policy institutions," European Journal of Political Economy, Elsevier, vol. 18(4), pages 761-781, November.
    38. Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
    39. Andrews, Donald W. K. & Lee, Inpyo & Ploberger, Werner, 1996. "Optimal changepoint tests for normal linear regression," Journal of Econometrics, Elsevier, vol. 70(1), pages 9-38, January.
    40. Cho, Seonghoon & Moreno, Antonio, 2006. "A Small-Sample Study of the New-Keynesian Macro Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1461-1481, September.
    41. Simona Delle Chiaie, 2009. "The sensitivity of DSGE models’ results to data detrending," Working Papers 157, Oesterreichische Nationalbank (Austrian Central Bank).
    42. Jesús Fernández-Villaverde, 2010. "The econometrics of DSGE models," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 3-49, March.
    43. Jürgen Von Hagen, 1999. "Macroeconomic Consequences of the EMU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(4), pages 359-374, December.
    44. Fabio Canova, 2007. "DSGE Models, Solutions, and Approximations, from Methods for Applied Macroeconomic Research," Introductory Chapters, in: Methods for Applied Macroeconomic Research, Princeton University Press.
    45. Tovar, Camilo Ernesto, 2009. "DSGE Models and Central Banks," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-31.
    46. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    47. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, September.
    48. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    49. Ignazio Angeloni & Michael Ehrmann, 2006. "The Euro and the Transmission of Monetary Policy," Chapters, in: Lawrence R. Klein (ed.), Long-run Growth and Short-run Stabilization, chapter 7, Edward Elgar Publishing.
    50. Ireland, Peter N., 1997. "A small, structural, quarterly model for monetary policy evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 83-108, December.
    51. David N. DeJong & Chetan Dave, 2007. "Introduction to Structural Macroeconometrics," Introductory Chapters, in: Structural Macroeconometrics, Princeton University Press.
    52. Atsushi Inoue & Barbara Rossi, 2011. "Identifying the Sources of Instabilities in Macroeconomic Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1186-1204, November.
    53. repec:bla:jcmkts:v:47:y:2009:i::p:579-599 is not listed on IDEAS
    54. Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January.
    55. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    56. Weber, Axel A. & Beck, Günter W., 2005. "Inflation rate dispersion and convergence in monetary and economic unions: lessons for the ECB," CFS Working Paper Series 2005/31, Center for Financial Studies (CFS).
    57. Donald W. K. Andrews & Ray C. Fair, 1988. "Inference in Nonlinear Econometric Models with Structural Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 615-640.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jürgen Jerger & Oke Röhe, 2014. "Testing for parameter stability in DSGE models. The cases of France, Germany, Italy, and Spain," International Economics and Economic Policy, Springer, vol. 11(3), pages 329-351, September.
    2. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    3. Peter Ireland & Niki Papadopoulou, 2004. "Sticky Prices vs. Limited Participation: What Do We Learn From the Data?," Money Macro and Finance (MMF) Research Group Conference 2004 79, Money Macro and Finance Research Group.
    4. Accolley, Delali, 2018. "Accounting for Busines Cycles in Canada: II. The Role of Money," MPRA Paper 85481, University Library of Munich, Germany.
    5. Givens, Gregory E., 2011. "Unemployment insurance in a sticky-price model with worker moral hazard," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1192-1214, August.
    6. Niki Papadopoulou, 2006. "Sticky Prices vs. Limited Participation:What Do We Learn From the Data?," Computing in Economics and Finance 2006 418, Society for Computational Economics.
    7. M. Marzo, 2001. "Evaluating Monetary Policy Regimes: the Role of Nominal Rigidities," Working Papers 411, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Niki Papadopoulou, 2004. "Sticky Prices, Limited Participation or Both?," Working Papers 2004_3, Business School - Economics, University of Glasgow.
    9. Ireland, Peter N., 2001. "Sticky-price models of the business cycle: Specification and stability," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 3-18, February.
    10. Ireland, Peter N, 2004. "Money's Role in the Monetary Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 969-983, December.
    11. Dib, Ali, 2006. "Nominal rigidities and monetary policy in Canada," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 303-325, June.
    12. Andrei Polbin & Sergey Drobyshevsky, 2014. "Developing a Dynamic Stochastic Model of General Equilibrium for the Russian Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 166P, pages 156-156.
    13. Ali Dib & Mohamed Gammoudi & Kevin Moran, 2008. "Forecasting Canadian time series with the New Keynesian model," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 138-165, February.
    14. Éric Jondeau & Hervé Le Bihan, 2002. "Evaluating Monetary Policy Rules in Estimated Forward-Looking Models: A Comparison of US and German Monetary Policies," Annals of Economics and Statistics, GENES, issue 67-68, pages 357-388.
    15. Wieland, Volker & Cwik, Tobias & Müller, Gernot J. & Schmidt, Sebastian & Wolters, Maik, 2012. "A new comparative approach to macroeconomic modeling and policy analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 523-541.
    16. Givens, Gregory E. & Salemi, Michael K., 2015. "Inferring monetary policy objectives with a partially observed state," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 190-208.
    17. Benjamin Keen, 2009. "Output, Inflation, and Interest Rates in an Estimated Optimizing Model of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 327-343, April.
    18. Peter N. Ireland, 2004. "Technology Shocks in the New Keynesian Model," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 923-936, November.
    19. Gaurav Saroliya, 2007. "The New Keynesian Business Cycle Achievements and Challenges," Discussion Papers 07/20, Department of Economics, University of York.
    20. PLASMANS, Joseph & FORNERO, Jorge & MICHALAK, Tomasz, 2006. "A microfounded sectoral model for open economies," Working Papers 2007013, University of Antwerp, Faculty of Business and Economics.

    More about this item

    Keywords

    DSGE; monetary policy; EMU; structural breaks;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ost:wpaper:276. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kseniia Gatskova (email available below). General contact details of provider: https://edirc.repec.org/data/osteide.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.