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Optimal Monetary Policy in a Medium Scale Model for Emerging Markets

Listed author(s):
  • Eric R. Young

    (University of Virginia)

  • Christopher Otrok

    (University of Virginia)

  • Alessandro Rebucci

    (International Monetary Fund)

  • Gianluca Benigno

    (London School of Economics)

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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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 373.

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Date of creation: 2007
Handle: RePEc:red:sed007:373
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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