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Bayesian Estimation of DSGE Models: Is the Workhorse Model Identified?

Evren Caglar, Jagjit Chadha () and Katsuyuki Shibayama

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: Koop, Pesaran and Smith (2011) suggest a simple diagnostic indicator for the Bayesian estimation of the parameters of a DSGE model. They show that, if a parameter is well identified, the precision of the posterior should improve as the (artificial) data size T increases, and the indicator checks the speed at which precision improves. It does not require any additional programming; a researcher just needs to generate artificial data and estimate the model with different T. Applying this to Smets and Wouters'(2007) medium size US model, we find that while exogenous shock processes are well identified, most of the parameters in the structural equations are not.

Keywords: Bayesian Estimation; Dynamic stochastic general equilibrium models; Identification. (search for similar items in EconPapers)
JEL-codes: C51 C52 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-dge
Date: 2012-02
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