System Priors: Formulating Priors about DSGE Models' Properties
IMF Working Papers, December 19, 2013
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Bibliographic details
- Authors: Michal Andrle, Jaromir Benes
- Published: December 19, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484318379.001
Summary
- Proposes a novel way of formulating priors for estimating economic models called "system priors".
- Defines system priors as priors about the model's features and behavior as a system (examples given: the sacrifice ratio; the maximum duration of response of inflation to a particular shock).
- Argues system priors provide a transparent and economically meaningful alternative to independent priors on individual parameters.
- States system priors may complement or substitute for independent marginal priors.
- Motivates, explains, and illustrates the approach using a structural model for monetary policy.
Key findings and concepts
- System priors target model-level properties (e.g., sacrifice ratio, duration of inflation response) rather than individual parameter distributions.
- System priors help avoid unintended consequences that can arise from independent priors on individual parameters.
- The paper illustrates the new philosophy within the context of a structural monetary policy model.
Methodology and illustration
- Uses a structural model for monetary policy to motivate, explain, and illustrate the formulation and application of system priors.
- Contrasts system priors with independent marginal priors and discusses complementarities and substitutions between the two approaches.
Policy implications and recommendations
- Encourage the use of system priors to formulate priors that are economically meaningful and transparent.
- Consider system priors as either a complement to or a substitute for independent marginal priors when estimating DSGE and related models.
- Apply system priors when researcher interest focuses on model-level behaviors (for example, sacrifice ratio or persistence/duration of responses to shocks).
Key statistics and publication metadata
- Authors: Michal Andrle, Jaromir Benes
- Date: December 19, 2013
- Pages: 26
- Volume: 2013
- Issue: 257
- Series: Working Paper No. 2013/257
- DOI: https://doi.org/10.5089/9781484318379.001
- Stock No: WPIEA2013257
- ISBN: 9781484318379
- ISSN: 1018-5941
- Citation preview (Chicago): Michal Andrle, and Jaromir Benes. "System Priors: Formulating Priors about DSGE Models' Properties", IMF Working Papers 2013, 257 (2013), accessed 9/17/2026, https://doi.org/10.5089/9781484318379.001
IMF Working Papers — System Priors: Formulating Priors about DSGE Models' Properties