System Priors: Formulating Priors about DSGE Models' Properties

Author/Editor:

Michal Andrle ; Jaromir Benes

Publication Date:

December 19, 2013

Electronic Access:

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Summary:

This paper proposes a novel way of formulating priors for estimating economic models. System priors are priors about the model's features and behavior as a system, such as the sacrifice ratio or the maximum duration of response of inflation to a particular shock, for instance. System priors represent a very transparent and economically meaningful way of formulating priors about parameters, without the unintended consequences of independent priors about individual parameters. System priors may complement or also substitute for independent marginal priors. The new philosophy of formulating priors is motivated, explained and illustrated using a structural model for monetary policy.

Series:

Working Paper No. 2013/257

Subject:

Dynamic stochastic general equilibrium models Econometric models Inflation targeting Labor

English

Publication Date:

December 19, 2013

ISBN/ISSN:

9781484318379/1018-5941

Stock No:

WPIEA2013257

Pages:

26

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