Parallel Tempering for DSGE Estimation

Joshua Brault

Staff Working Papers from Bank of Canada

Abstract: In this paper, I develop a population-based Markov chain Monte Carlo (MCMC) algorithm known as parallel tempering to estimate dynamic stochastic general equilibrium (DSGE) models. Parallel tempering approximates the posterior distribution of interest using a family of Markov chains with tempered posteriors. At each iteration, two randomly selected chains in the ensemble are proposed to swap parameter vectors, after which each chain mutates via Metropolis-Hastings. The algorithm results in a fast-mixing MCMC, particularly well suited for problems with irregular posterior distributions. Also, due to its global nature, the algorithm can be initialized directly from the prior distributions. I provide two empirical examples with complex posteriors: a New Keynesian model with equilibrium indeterminacy and the Smets-Wouters model with more diffuse prior distributions. In both examples, parallel tempering overcomes the inherent estimation challenge, providing extremely consistent estimates across different runs of the algorithm with large effective sample sizes. I provide code compatible with Dynare mod files, making this routine straightforward for DSGE practitioners to implement.

Keywords: Econometric and statistical methods; Economic models (search for similar items in EconPapers)
JEL-codes: C11 C15 E10 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2024-05
New Economics Papers: this item is included in nep-dge, nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/2024/05/staff-working-paper-2024-13/ Abstract (text/html)
https://www.bankofcanada.ca/wp-content/uploads/2024/05/swp2024-13.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:24-13

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().