Skip to Main content Skip to Navigation
Preprints, Working Papers, ...

Parameter Bias in an Estimated DSGE Model: Does Nonlinearity Matter?

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.
Document type :
Preprints, Working Papers, ...
Complete list of metadatas

Cited literature [26 references]  Display  Hide  Download

https://halshs.archives-ouvertes.fr/halshs-01661908
Contributor : Dora Beaudequin <>
Submitted on : Tuesday, December 12, 2017 - 1:53:35 PM
Last modification on : Saturday, September 19, 2020 - 3:52:16 AM

File

CEAFJPDP16-03.pdf
Files produced by the author(s)

Licence


Distributed under a Creative Commons Attribution - NonCommercial - NoDerivatives 4.0 International License

Identifiers

  • HAL Id : halshs-01661908, version 1

Collections

Citation

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

Share

Metrics

Record views

149

Files downloads

245