Identification of prior information via moment-matching
In this paper we apply a sensitivity analysis regarding two types of prior information considered within the Bayesian estimation of a standard hybrid New-Keynesian model. In particular, we shed a light on the impact of micro- and macropriors on the estimation outcome. First, we investigate the impact of the transformation of those model parameters which are bounded to the unit interval, in order to allow for a more diffuse prior distribution. Second, we combine the Moment-Matching (MM, Franke et al. (2012)) and Bayesian technique in order to evaluate macropriors. In this respect we define a two-stage estimation procedure - the so-called Moment-Matching based Bayesian (MoMBay) estimation approach - where we take the point estimates evaluated via MM and consider them as prior mean values of the parameters within Bayesian estimation. We show that while (transformed) micropriors are often used in the literature, applying macropriors evaluated via the MoMBay approach leads to a better fit of the structural model to the data. Furthermore, there is evidence for intrinsic (degree of price indexation) rather than extrinsic (autocorrelation in the shock process) persistence - an observation which stands in contradiction to the results documented in the recent literature.
|Date of creation:||2014|
|Date of revision:|
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- Sacht, Stephen, 2014.
"Analysis of Various Shocks within the High-Frequency Versions of the Baseline New-Keynesian Model,"
Annual Conference 2014 (Hamburg): Evidence-based Economic Policy
100372, Verein für Socialpolitik / German Economic Association.
- Sacht, Stephen, 2014. "Analysis of various shocks within the high-frequency versions of the baseline New-Keynesian model," Economics Working Papers 2014-02, Christian-Albrechts-University of Kiel, Department of Economics.
- Sacht, Stephen & Franke, Reiner & Jang, Tae-Seok, 2013.
"Moment Matching versus Bayesian Estimation: Backward-Looking Behaviour in a New-Keynesian Baseline Model,"
Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order
79694, Verein für Socialpolitik / German Economic Association.
- Franke, Reiner & Jang, Tae-Seok & Sacht, Stephen, 2015. "Moment matching versus Bayesian estimation: Backward-looking behaviour in a New-Keynesian baseline model," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 126-154.
- Franke, Reiner & Jang, Tae-Seok & Sacht, Stephen, 2012. "Moment matching versus Bayesian estimation: Backward-looking behaviour in a New-Keynesian baseline model," Economics Working Papers 2012-08, Christian-Albrechts-University of Kiel, Department of Economics.
- Lombardi, Marco J. & Nicoletti, Giulio, 2012.
"Bayesian prior elicitation in DSGE models: Macro- vs micropriors,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 36(2), pages 294-313.
- Lombardi, Marco J. & Nicoletti, Giulio, 2011. "Bayesian prior elicitation in DSGE models: macro- vs micro-priors," Working Paper Series 1289, European Central Bank.
- Sacht, Stephen, 2014. "Optimal monetary policy responses and welfare analysis within the highfrequency New-Keynesian framework," Economics Working Papers 2014-03, Christian-Albrechts-University of Kiel, Department of Economics.
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