Moment matching versus Bayesian estimation: Backward-looking behaviour in a New-Keynesian baseline model
Reiner Franke,
Tae-Seok Jang and
Stephen Sacht
The North American Journal of Economics and Finance, 2015, vol. 31, issue C, 126-154
Abstract:
The paper considers an elementary New-Keynesian three-equation model and compares its Bayesian estimation based on conventional priors to the results from the method of moments (MM), which seeks to match a finite set of the model-generated second moments of inflation, output and the interest rate to their empirical counterparts. It is found that in the Great Inflation (GI) period—though not quite in the Great Moderation (GM)—the two estimations imply a significantly different covariance structure. Regarding the parameters, special emphasis is placed on the degree of backward-looking behaviour in the Phillips curve. While, in line with much of the literature, it plays a minor role in the Bayesian estimations, MM yields values of the price indexation parameter close to or even at its maximal value of unity. For both GI and GM, these results are worth noticing since in (strong or, respectively, weak) contrast to the Bayesian parameters, the covariance matching thus achieved appears rather satisfactory.
Keywords: Autocovariance profiles; Inflation persistence; Goodness-of-fit; Price indexation (search for similar items in EconPapers)
JEL-codes: C52 E32 E37 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)
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http://www.sciencedirect.com/science/article/pii/S1062940814001156
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Related works:
Working Paper: Moment Matching versus Bayesian Estimation: Backward-Looking Behaviour in a New-Keynesian Baseline Model (2013) 
Working Paper: Moment matching versus Bayesian estimation: Backward-looking behaviour in a New-Keynesian baseline model (2012) 
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:31:y:2015:i:c:p:126-154
DOI: 10.1016/j.najef.2014.11.001
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