Optimal Monetary Policy in a Medium Scale Model for Emerging Markets
Eric Young (),
Christopher Otrok (),
Alessandro Rebucci () and
No 373, 2007 Meeting Papers from Society for Economic Dynamics
To establish that our model is a reasonable description of the data we estimate the model using Bayesian methods and then evaluate its fit along a number of standard dimensions. The Bayesian approach to estimating the model parameters is especially important for providing discipline on the parameters in the financial friction and nominal rigidities. As a technical contribution, we estimate the model using non-linear likelihood methods based on the “particle” filter. Since the model itself is inherently nonlinear, it cannot be solved using a linear approximation, nor it is appropriate to use a linear approximation to the likelihood function. To our knowledge this paper is the first likelihood-based empirical assessment of sudden stop models.
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed007:373
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