Bayesian Dynamic Factor Analysis of a Simple Monetary DSGE Model

Maxym Kryshko

No 2011/219, IMF Working Papers from International Monetary Fund

Abstract: When estimating DSGE models, the number of observable economic variables is usually kept small, and it is conveniently assumed that DSGE model variables are perfectly measured by a single data series. Building upon Boivin and Giannoni (2006), we relax these two assumptions and estimate a fairly simple monetary DSGE model on a richer data set. Using post-1983 U.S.data on real output, inflation, nominal interest rates, measures of inverse money velocity, and a large panel of informational series, we compare the data-rich DSGE model with the regular - few observables, perfect measurement - DSGE model in terms of deep parameter estimates, propagation of monetary policy and technology shocks and sources of business cycle fluctuations. We document that the data-rich DSGE model generates a higher implied duration of Calvo price contracts and a lower slope of the New Keynesian Phillips curve. To reduce the computational costs of the likelihood-based estimation, we employed a novel speedup as in Jungbacker and Koopman (2008) and achieved the time savings of 60 percent.

Keywords: WP; DSGE model; Regular and data-rich DSGE models; dynamic factor models; Bayesian estimation; fed funds rate; DSGE estimation; DSGE state; DSGE parameter; structural parameter; contractionary monetary policy; model concept; DSGE states-factor; DSGE m; rich DSGE; model state; Dynamic stochastic general equilibrium models; Inflation; Demand for money; Monetary base; Deflation (search for similar items in EconPapers)
Pages: 60
Date: 2011-09-01
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Citations: View citations in EconPapers (4)

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