System Priors: Formulating Priors about DSGE Models' Properties

December 19, 2013

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Format: Chicago

Michal Andrle, and Jaromir Benes. System Priors: Formulating Priors about DSGE Models' Properties, (USA: International Monetary Fund, 2013) accessed November 23, 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

This paper proposes a novel way of formulating priors for estimating economic models. System priors are priors about the model's features and behavior as a system, such as the sacrifice ratio or the maximum duration of response of inflation to a particular shock, for instance. System priors represent a very transparent and economically meaningful way of formulating priors about parameters, without the unintended consequences of independent priors about individual parameters. System priors may complement or also substitute for independent marginal priors. The new philosophy of formulating priors is motivated, explained and illustrated using a structural model for monetary policy.

Subject: Dynamic stochastic general equilibrium models, Econometric models, Inflation targeting, Labor

Keywords: Demand shock, Monetary policy, Normal distribution, Sacrifice ratio, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/257
Stock No:

WPIEA2013257
ISBN:

9781484318379
ISSN:

1018-5941

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