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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)

This paper discusses prior elicitation for the parameters of dynamic stochastic general equilibrium (DSGE) models and provides a method for constructing prior distributions for a subset of these parameters from beliefs about the moments of the endogenous variables. The empirical application studies the role of price and wage rigidities in a New Keynesian DSGE model and finds that standard macro time series cannot discriminate among theories that differ in the quantitative importance of nominal frictions.

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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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