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Identification Versus Misspecification in New Keynesian Monetary Policy Models

Stefan Laséen (), Jesper Lindé and Marco Ratto

No 13492, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper, we study identification and misspecification problems in standard closed and open-economy empirical New-Keynesian DSGE models used in monetary policy analysis. We find that problems with model misspecification still appear to be a first-order issue in monetary DSGE models, and argue that it is problems with model misspecification that may benefit the most from moving from a classical to a Bayesian framework. We also argue that lack of identification should neither be ignored nor be assumed to affect all DSGE models. Fortunately, identification problems can be readily assessed on a case-by-case basis, by applying recently developed pre-tests of identification.

Keywords: Bayesian estimation; Closed economy; DSGE model; Maximum Likelihood Estimation; Monte-Carlo methods; Open economy (search for similar items in EconPapers)
JEL-codes: C13 C51 E30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ecm, nep-ets, nep-mac, nep-mon and nep-ore
Date: 2019-01
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Journal Article: Identification versus misspecification in New Keynesian monetary policy models (2019) Downloads
Working Paper: Identification Versus Misspecification in New Keynesian Monetary Policy Models (2018) Downloads
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