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Trend agnostic one step estimation of DSGE models

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  • Ferroni, Filippo

Abstract

DSGE models are currently estimated with a two step approach: data is first filtered and then DSGE structural parameters are estimated. Two step procedures have problems, ranging from trend misspecification to wrong assumption about the correlation between trend and cycles. In this paper, I present a one step method, where DSGE structural parameters are jointly estimated with filtering parameters. I show that different data transformations imply different structural estimates; the two step approach lacks a statistical-based criterion to select among them. The one step approach allows to test hypothesis about the most likely trend specification for individual series and/or use the resulting information to construct robust estimates by Bayesian averaging. The role of investment shock as source of GDP volatility is reconsidered.

Suggested Citation

  • Ferroni, Filippo, 2009. "Trend agnostic one step estimation of DSGE models," MPRA Paper 14550, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14550
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    References listed on IDEAS

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    More about this item

    Keywords

    DSGE models; Filters; Structural estimation; Business Cycles;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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