Bayesian Dynamic Factor Analysis of a Simple Monetary DSGE Model

September 1, 2011

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Format: Chicago

Maxym Kryshko. Bayesian Dynamic Factor Analysis of a Simple Monetary DSGE Model, (USA: International Monetary Fund, 2011) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Deflation, Demand for money, Dynamic stochastic general equilibrium models, Econometric analysis, Industrial production, Inflation, Monetary base, Money, Prices

Keywords: Bayesian estimation, Contractionary monetary policy, Deflation, Demand for money, DSGE estimation, DSGE m, DSGE model, DSGE parameter, DSGE state, DSGE states-factor, Dynamic factor models, Dynamic stochastic general equilibrium models, Fed funds rate, Inflation, Model concept, Model state, Monetary base, Regular and data-rich DSGE models, Rich DSGE, Structural parameter, WP

Publication Details

Pages:

60
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/219
Stock No:

WPIEA2011219
ISBN:

9781463904210
ISSN:

1018-5941

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