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Bayesian Estimation of DSGE models: Is the Workhorse Model Identified?

  • Evren Caglar

    ()

  • Jagjit S. Chadha

    ()

  • Katsuyuki Shibayama

    ()

Koop, Pesaran and Smith (2011) suggest a simple diagnostic indicator for the Bayesian estimation of the parameters of a DSGE model. They show that, if a parameter is well identified, the precision of the posterior should improve as the (artificial) data size T increases, and the indicator checks the speed at which precision improves. It does not require any additional programming; a researcher just needs to generate artificial data and estimate the model with different T. Applying this to Smets and Wouters'(2007) medium size US model, we find that while exogenous shock processes are well identified, most of the parameters in the structural equations are not.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/1125.pdf
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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 1125.

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Date of creation: Nov 2011
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Handle: RePEc:ukc:ukcedp:1125
Contact details of provider: Postal: School of Economics, University of Kent, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/

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  1. Agostino Consolo & Carlo A. Favero & Alessia Paccagnini, 2007. "On the Statistical Identification of DSGE Models," Working Papers 324, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Marco Ratto & Werner Roeger, 2005. "An estimated open-economy model for the EURO area," Computing in Economics and Finance 2005 84, Society for Computational Economics.
  3. Iskrev, Nikolay, 2008. "Evaluating the information matrix in linearized DSGE models," Economics Letters, Elsevier, vol. 99(3), pages 607-610, June.
  4. Marco Ratto, 2008. "Analysing DSGE Models with Global Sensitivity Analysis," Computational Economics, Society for Computational Economics, vol. 31(2), pages 115-139, March.
  5. Iskrev, Nikolay, 2010. "Local identification in DSGE models," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 189-202, March.
  6. Nikolay Iskrev, 2010. "Parameter identification in Dynamic Economic models," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  7. Andrle, Michal, 2010. "A note on identification patterns in DSGE models," Working Paper Series 1235, European Central Bank.
  8. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
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