Evaluating and estimating a DSGE model for the United Kingdom
Richard Harrison () and
Özlem Oomen ()
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Özlem Oomen: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
No 380, Bank of England working papers from Bank of England
We build a small open economy dynamic stochastic general equilibrium model, featuring many types of nominal and real frictions that have become standard in the literature. In recent years it has become possible to estimate such models using Bayesian methods. These exercises typically involve augmenting a stochastically singular model with a number of shocks to structural equations to make estimation feasible, even though the motivation for the choice of these shocks is often unspecified. In an attempt to put this approach on a more formal basis, we estimate the model in two stages. First, we evaluate a calibrated version of the stochastically singular model. Then, we augment the model with structural shocks motivated by the results of the evaluation stage and estimate the resulting model using UK data using a Bayesian approach. Finally, we reassess the adequacy of this augmented and estimated model in reconciling the dynamics of the model with the data. Our findings suggest that the shock processes play a crucial role in helping to match the data.
Keywords: DSGE models; model evaluation; Bayesian estimation; monetary policy (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
Pages: 64 pages
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0380
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