Zero Lower Bound and Parameter Bias in an Estimated DSGE Model

Yasuo Hirose and Atsushi Inoue

No 12, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: This paper examines how and to what extent parameter estimates can be biased in a dynamic stochastic general equilibrium (DSGE) model that omits the zero lower bound constraint on the nominal interest rate. Our experiments show that most of the parameter estimates in a standard sticky-price DSGE model are not biased although some biases are detected in the estimates of the monetary policy parameters and the steady-state real interest rate. Nevertheless, in our baseline experiment, these biases are so small that the estimated impulse response functions are quite similar to the true impulse response functions. However, as the probability of hitting the zero lower bound increases, the biases in the parameter estimates become larger and can therefore lead to substantial differences between the estimated and true impulse responses. Classification-JEL : C32, E30, E52

Keywords: Zero lower bound; DSGE model; Parameter bias; Bayesian estimation (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013-09
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The Zero Lower Bound and Parameter Bias in an Estimated DSGE Model (2016)
Working Paper: The Zero Lower Bound and Parameter Bias in an Estimated DSGE Model (2014)
Working Paper: The zero lower bound and parameter bias in an estimated DSGE model (2014)
Working Paper: Zero Lower Bound and Parameter Bias in an Estimated DSGE Model (2013)
Working Paper: Zero Lower Bound and Parameter Bias in an Estimated DSGE Model (2013)
Working Paper: Zero Lower Bound and Parameter Bias in an Estimated DSGE Model (2013)
Working Paper: Zero Lower Bound and Parameter Bias in an Estimated DSGE Model (2013)
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