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Forming Priors for DSGE Models (and How It Affects the Assessment of Nominal Rigidities)

  • Frank Schorfheide

    (University of Pennsylvania CEPR and NBER)

  • Marco Del Negro

    (Federal Reserve Bank of Atlanta)

We discuss prior elicitation for the parameters of dynamic stochastic general equilibrium (DSGE) models, and provide a method for constructing prior distributions for a subset of these parameters from beliefs about steady-state relationships and second moments of the endogenous variables. The empirical application documents how the specification of the prior distribution affects our assessment of the relative importance of price and wage rigidities in a New Keynesian DSGE model.

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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 283.

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Date of creation: 2007
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Handle: RePEc:red:sed007:283
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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