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Parameter Drifting in a DSGE Model Estimated on Czech Data

Jaromir Tonner (), Jiří Polanský () and Osvald Vašíèek
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Osvald Vašíèek: Faculty of Economics and Administration, Masaryk University, Czech Republic,

Czech Journal of Economics and Finance (Finance a uver), 2011, vol. 61, issue 5, 510-524

Abstract: In this article, the authors investigate the possible time-varying structure of DSGE models. They follow the study of Andrle et al. (2009), which argues that models designed for monetary policy analysis and forecasting of an economy that is undergoing structural changes must include exogenous processes (technologies) capturing the specific characteristics of individual sectors. The authors conclude that the presence of structural changes and the convergence process in the data imply drifting of structural parameters in the model without technologies. Incorporating technologies causes the structural parameters to be relatively stable. From the perspective of monetary policy analysis and forecasting, it seems more convenient to assume that the structural parameters are stable and use sectoral technologies owing to their aggregate form.

Keywords: DSGE models; time-varying parameters; Kalman filter (search for similar items in EconPapers)
JEL-codes: C11 C13 D58 E32 E47 (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:fau:fauart:v:61:y:2011:i:5:p:510-524