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Bayesian Estimation of Dynamic Stochastic General Equilibrium Model Using UK Data

  • Kamal, Mona

This paper applies the Bayesian method to estimate a Dynamic Stochastic General Equilibrium (DSGE) model using quarterly data for the UK over the period from 1971:Q1 through 2009:Q2. The contribution of the paper is two-fold. First, we estimate a model characterised by nominal and real frictions. This estimation allows us to recover the structural parameters of the economy and study the transmission mechanism of a government spending shock. Second, we investigate how the inclusion of fiscal policy rules affect the propagation of shocks and the ability of the model to fit the data. We establish that this inclusion enable the model to fit the data more closely. In addition, it has an impact on the qualitative responses of macroeconomic variables to the government spending shock.

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File URL: http://mpra.ub.uni-muenchen.de/29239/2/MPRA_paper_29239.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28988.

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Date of creation: 17 Feb 2011
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Handle: RePEc:pra:mprapa:28988
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  1. Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," Working Paper 2007-24, Federal Reserve Bank of Atlanta.
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  12. Vanda Almeida, 2009. "Bayesian estimation of a DSGE model for the Portuguese economy," Working Papers w200914, Banco de Portugal, Economics and Research Department.
  13. Andrew Mountford & Harald Uhlig, 2005. "What are the Effects of Fiscal Policy Shocks?," SFB 649 Discussion Papers SFB649DP2005-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  14. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
  15. Afonso, António & Sousa, Ricardo M., 2009. "The macroeconomic effects of fiscal policy," Working Paper Series 0991, European Central Bank.
  16. Marco Del Negro & Frank Schorfheide, 2002. "Priors from general equilibrium models for VARs," Working Paper 2002-14, Federal Reserve Bank of Atlanta.
  17. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Are Constant Interest Rate Forecasts Modest Interventions? Evidence from an Estimated Open Economy DSGE Model of the Euro Area," Working Paper Series 180, Sveriges Riksbank (Central Bank of Sweden).
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  21. Kamal, Mona, 2010. "Empirical Investigation of Fiscal Policy Shocks in the UK," MPRA Paper 26473, University Library of Munich, Germany.
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  24. Dirk Muir & Douglas Laxton & Dennis P. J. Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
  25. Morten O. Ravn & Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," NBER Working Papers 13328, National Bureau of Economic Research, Inc.
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  28. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive 521, The Johns Hopkins University,Department of Economics.
  29. Faccini, Renato & Millard, Stephen & Zanetti, Francesco, 2011. "Wage rigidities in an estimated DSGE model of the UK labour market," Bank of England working papers 408, Bank of England.
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