Assessing DSGE Model Nonlinearities

S. Boragan Aruoba, Luigi Bocola and Frank Schorfheide

No 19693, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a new class of nonlinear time-series models to identify nonlinearities in the data and to evaluate nonlinear DSGE models. U.S. output growth and the federal funds rate display nonlinear conditional mean dynamics, while inflation and nominal wage growth feature conditional heteroskedasticity. We estimate a DSGE model with asymmetric wage/price adjustment costs and use predictive checks to assess its ability to account for nonlinearities. While it is able to match the nonlinear inflation and wage dynamics, thanks to the estimated downward wage/price rigidities, these do not spill over to output growth or the interest rate.

JEL-codes: C11 C32 C52 E32 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-dge and nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (12)

Published as Aruoba, S. Borağan & Bocola, Luigi & Schorfheide, Frank, 2017. "Assessing DSGE model nonlinearities," Journal of Economic Dynamics and Control, Elsevier, vol. 83(C), pages 34-54.

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Journal Article: Assessing DSGE model nonlinearities (2017)
Working Paper: Assessing DSGE model nonlinearities (2013)
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