Estimating time-varying DSGE models using minimum distance methods

Liudas Giraitis (), George Kapetanios, Konstantinos Theodoridis and Tony Yates ()
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Liudas Giraitis: Queen Mary, University of London
Tony Yates: University of Bristol and Centre for Macroeconomics

No 507, Bank of England working papers from Bank of England

Abstract: This paper uses kernel methods to estimate a seven variable time-varying (TV) vector autoregressive (VAR) model on the US data set constructed by Smets and Wouters. We use an indirect inference method to map from this TV VAR to time variation in implied dynamic stochastic general equilibrium (DSGE) parameters. We find that many parameters change substantially, particularly those defining nominal rigidities, habits and investment adjustment costs. In contrast to the ‘Great Moderation’ literature our monetary policy parameter estimates suggest that authorities tried to deliver a low and stable inflation from 1975 onwards. However, the severe adverse supply shocks in the 70s could have caused these policies to fail.

Keywords: DSGE; structural change; kernel estimation; time-varying VAR; monetary policy shocks (search for similar items in EconPapers)
JEL-codes: C14 C18 E52 E61 E66 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014-08-22
New Economics Papers: this item is included in nep-dge, nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Estimating Time-Varying DSGE Models Using Minimum Distance Methods (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0507

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