Estimating dynamic equilibrium economies: linear versus nonlinear likelihood

Jesus Fernandez-Villaverde and Juan F Rubio-Ramirez

No 2004-3, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper compares two methods for undertaking likelihood-based inference in dynamic equilibrium economies: a sequential Monte Carlo filter proposed by Fernndez-Villaverde and Rubio-Ramrez (2004) and the Kalman filter. The sequential Monte Carlo filter exploits the nonlinear structure of the economy and evaluates the likelihood function of the model by simulation methods. The Kalman filter estimates a linearization of the economy around the steady state. The authors report two main results. First, both for simulated and for real data, the sequential Monte Carlo filter delivers a substantially better fit of the model to the data as measured by the marginal likelihood. This is true even for a nearly linear case. Second, the differences in terms of point estimates, even if relatively small in absolute values, have important effects on the moments of the model. The authors conclude that the nonlinear filter is a superior procedure for taking models to the data.

Date: 2004
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.frbatlanta.org/-/media/documents/resea ... s/wp/2004/wp0403.pdf (application/pdf)

Related works:
Journal Article: Estimating dynamic equilibrium economies: linear versus nonlinear likelihood (2005)
Working Paper: Estimating Dynamic Equilibrium Economies: Linear versus Nonlinear Likelihood (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:2004-3

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark ().