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.
Type de document :
Pré-publication, Document de travail
Discussion Paper 16-03. 2016
Liste complète des métadonnées

Littérature citée [28 références]  Voir  Masquer  Télécharger

https://halshs.archives-ouvertes.fr/halshs-01661908
Contributeur : Dora Beaudequin <>
Soumis le : mardi 12 décembre 2017 - 13:53:35
Dernière modification le : vendredi 22 décembre 2017 - 14:50:18

Fichier

CEAFJPDP16-03.pdf
Fichiers produits par l'(les) auteur(s)

Licence


Distributed under a Creative Commons Paternité - Pas d'utilisation commerciale - Pas de modification 4.0 International License

Identifiants

  • HAL Id : halshs-01661908, version 1

Collections

Citation

Yasuo Hirose, Takeki Sunakawa. Parameter Bias in an Estimated DSGE Model: Does Nonlinearity Matter?. Discussion Paper 16-03. 2016. 〈halshs-01661908〉

Partager

Métriques

Consultations de la notice

8

Téléchargements de fichiers

85