Optimal Monetary Policy in a Medium Scale Model for Emerging Markets
To establish that our model is a reasonable description of the data we estimate the model using Bayesian methods and then evaluate its fit along a number of standard dimensions. The Bayesian approach to estimating the model parameters is especially important for providing discipline on the parameters in the financial friction and nominal rigidities. As a technical contribution, we estimate the model using non-linear likelihood methods based on the “particle” filter. Since the model itself is inherently nonlinear, it cannot be solved using a linear approximation, nor it is appropriate to use a linear approximation to the likelihood function. To our knowledge this paper is the first likelihood-based empirical assessment of sudden stop models.
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|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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