Assessing DSGE model nonlinearities
S. Boragan Aruoba (),
Luigi Bocola () and
Frank Schorfheide ()
Journal of Economic Dynamics and Control, 2017, vol. 83, issue C, 34-54
We develop a new class of time series models to identify nonlinearities in the data and to evaluate DSGE models. U.S. output growth and the federal funds rate display nonlinear conditional mean dynamics, while inflation and nominal wage growth feature conditional heteroskedasticity. We estimate a DSGE model with asymmetric wage and price adjustment costs and use predictive checks to assess its ability to account for these nonlinearities. While it is able to match the nonlinear inflation and wage dynamics, thanks to the estimated downward wage and price rigidities, these do not spill over to output growth or the interest rate.
Keywords: Asymmetric adjustment costs; Bayesian analysis; Econometric model evaluation; Perturbation solution; Predictive checks; Quadratic autoregressions (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 E32 (search for similar items in EconPapers)
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Working Paper: Assessing DSGE model nonlinearities (2013)
Working Paper: Assessing DSGE Model Nonlinearities (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:83:y:2017:i:c:p:34-54
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