Monetary Policy Analysis with Potentially Misspecified Models

Authors: Del Negro, Marco; Schorfheide, Frank

Source: The American Economic Review, Volume 99, Number 4, September 2009 , pp. 1415-1450(36)

Publisher: American Economic Association

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Abstract:

Policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models faces two challenges: estimation of parameters that are relevant for policy trade-offs, and treatment of the deviations from the cross-equation restrictions. Using post-1982 US data, we study the robustness of the policy prescriptions from a state-of-the-art DSGE model with respect to two approaches to model misspecification pursued in the recent literature: (i) adding shocks to the DSGE model and/or generalizing the processes followed by these shocks; and (ii) explicit modeling of deviations from cross-equation restrictions (DSGE-VAR).

Document Type: Research article

DOI: 10.1257/aer.99.4.1415

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