Parameter Bias in an Estimated DSGE Model - Archive ouverte HAL Access content directly
Preprints, Working Papers, ... Year :

Parameter Bias in an Estimated DSGE Model

Yasuo Hirose
  • Function : Author
  • PersonId : 1024882

Abstract

How can parameter estimates be biased in a dynamic stochastic general equilibrium model that omits nonlinearity in the economy? To answer this question, we simulate data from a fully nonlinear New Keynesian model with the zero lower bound constraint and estimate a linearized version of the model. Monte Carlo experiments show that significant biases are detected in the estimates of monetary policy parameters and the steady-state inflation and real interest rates. These biases arise mainly from neglecting the zero lower bound constraint rather than linearizing equilibrium conditions. With fixed parameters, the variance-covariance matrix and impulse response functions of observed variables implied by the linearized model substantially differ from those implied by its nonlinear counterpart. However, we find that the biased estimates of parameters in the estimated linear model can make most of the differences small.
Fichier principal
Vignette du fichier
CEAFJPDP16-03.pdf (575.66 Ko) Télécharger le fichier
Origin : Files produced by the author(s)
Loading...

Dates and versions

halshs-01661908 , version 1 (12-12-2017)

Licence

Attribution - NonCommercial - NoDerivatives - CC BY 4.0

Identifiers

  • HAL Id : halshs-01661908 , version 1

Cite

Yasuo Hirose, Takeki Sunakawa. Parameter Bias in an Estimated DSGE Model: Does Nonlinearity Matter?. 2016. ⟨halshs-01661908⟩
99 View
107 Download

Share

Gmail Facebook Twitter LinkedIn More