Bayesian Dynamic Factor Analysis of a Simple Monetary DSGE Model
Electronic Access:
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Summary:
When estimating DSGE models, the number of observable economic variables is usually kept small, and it is conveniently assumed that DSGE model variables are perfectly measured by a single data series. Building upon Boivin and Giannoni (2006), we relax these two assumptions and estimate a fairly simple monetary DSGE model on a richer data set. Using post-1983 U.S.data on real output, inflation, nominal interest rates, measures of inverse money velocity, and a large panel of informational series, we compare the data-rich DSGE model with the regular - few observables, perfect measurement - DSGE model in terms of deep parameter estimates, propagation of monetary policy and technology shocks and sources of business cycle fluctuations. We document that the data-rich DSGE model generates a higher implied duration of Calvo price contracts and a lower slope of the New Keynesian Phillips curve. To reduce the computational costs of the likelihood-based estimation, we employed a novel speedup as in Jungbacker and Koopman (2008) and achieved the time savings of 60 percent.
Series:
Working Paper No. 2011/219
Subject:
Deflation Demand for money Dynamic stochastic general equilibrium models Econometric analysis Industrial production Inflation Monetary base Money Prices
English
Publication Date:
September 1, 2011
ISBN/ISSN:
9781463904210/1018-5941
Stock No:
WPIEA2011219
Pages:
60
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