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Bayesian estimation of a DSGE model with asset prices

  • Kliem, Martin
  • Uhlig, Harald

This paper presents a novel Bayesian method for estimating dynamic stochastic general equilibrium (DSGE) models subject to a constrained posterior distribution of the implied Sharpe ratio. We apply our methodology to a DSGE model with habit formation in consumption and leisure, using an estimate of the Sharpe ratio to construct the constraint. We show that the constrained estimation produces a quantitative model with both reasonable asset-pricing as well as business-cycle implications.

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File URL: http://econstor.eu/bitstream/10419/85251/1/770381308.pdf
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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 37/2013.

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Date of creation: 2013
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Handle: RePEc:zbw:bubdps:372013
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  29. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "Introducing financial frictions and unemployment into a small open economy model," CQER Working Paper 2010-04, Federal Reserve Bank of Atlanta.
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  32. Eric T. Swanson, 2012. "Risk Aversion and the Labor Margin in Dynamic Equilibrium Models," American Economic Review, American Economic Association, vol. 102(4), pages 1663-91, June.
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