Monetary Policy Analysis with Potentially Misspecified Models

Marco Del Negro and Frank Schorfheide

No 13099, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models faces two challenges: estimation of parameters that are relevant for policy trade-offs and treatment of estimated deviations from the cross-equation restrictions. This paper develops and explores policy analysis approaches that are either based on a generalized shock structure for the DSGE model or the explicit modelling of deviations from cross-equation restrictions. Using post-1982 U.S. data we first quantify the degree of misspecification in a state-of-the-art DSGE model and then document the performance of different interest-rate feedback rules. We find that many of the policy prescriptions derived from the benchmark DSGE model are robust to the various treatments of misspecifications considered in this paper, but that quantitatively the cost of deviating from such prescriptions varies substantially.

JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2007-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Marco Del Negro & Frank Schorfheide, 2009. "Monetary Policy Analysis with Potentially Misspecified Models," American Economic Review, American Economic Association, vol. 99(4), pages 1415-50, September.

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Related works:
Journal Article: Monetary Policy Analysis with Potentially Misspecified Models (2009)
Working Paper: Monetary policy analysis with potentially misspecified models (2008)
Working Paper: Monetary policy analysis with potentially misspecified models (2005)
Working Paper: Monetary policy analysis with potentially misspecified models (2005)
Working Paper: Monetary policy analysis with potentially misspecified models (2005)
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