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8 votes
Accepted

DSGE models (Dynare) are only based on simulations and approximations? (without data)

Short answer It doesn't seem like you've tried very hard to find estimation using Dynare (google results of "Dynare estimation"). Dynare is in fact capable of doing estimation and typically people ...
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7 votes

Textbook on the mathematics of RBC/DSGE models?

The mathematical theory behind DSGE models can be found in any textbook on stochastic dynamic optimisation. One common reference that economists use for this is Stokey, Lucas and Prescott. Of course, ...
7 votes
Accepted

Does julia's speed advantage over python make any difference for DSGE modeling?

Julia is actually a lot faster than Python, also when running DSGE models. The NY FED moved their DSGE model to Julia because it allows them to: Estimate models 10x faster Complete 'solve' test 11x ...
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6 votes

Interest rate rule in monetary DSGE model

I've just solved this problem. First of all, your solution does not make too much sense, as in a simple interest rate rule it must hold that the sum of all coefficients must be greater than one. In ...
  • 148
6 votes
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Intuition for the CES consumption index in New-Keynesian DSGE models

Heuristically, you can think of the integral as just a sum: $$ \bar{C} = \left( \sum_{i=1}^n C_i^{1-\frac{1}{\epsilon}} \right)^{\frac{\epsilon}{\epsilon - 1}} $$ where $\bar{C}$ is an index of ...
6 votes
Accepted

Government expenditure multiplier in the new-Keynesian model?

The "standard" New Keynesian model could be many things, but suppose that we're dealing with the basic log-linearized 3-equation model (intertemporal Euler equation, New Keynesian Phillips curve, and ...
6 votes
Accepted

Ultra simple DSGE to implement

As mentioned by Michael quantecon has good resources. Here is an example of very simple DSGE model from quantecon. I am not sure if you can get to as low as 3 equations but here is very simple example ...
  • 48.8k
5 votes

Can Dynare solve general equilibrium (GE) models with non-convex adjustment costs?

Short answer: no. Dynare, and linearization/perturbation methods in general, are designed for solving smooth models approximated around a single point in state space (the steady state). A model ...
  • 1,076
5 votes

Ultra simple DSGE to implement

Jordi Galís book "Monetary Policy, Inflation, and the Business Cycle" features the 3-equation "Simple New Keynesian" Model: \begin{align*} \pi_t &= \beta E_t[\pi_{t+1}] + \...
5 votes

Does julia's speed advantage over python make any difference for DSGE modeling?

There are certainly cases where the performance differences between Python and Julia matter, but solving a simple DSGE model is not one of them. There have been some formal comparison exercises (e.g., ...
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5 votes
Accepted

What are the assumptions made about fixed points in the dynamics equations of Recursive macroeconomics?

On pages 53-55 of the Stokey, Lucas, with Prescott (1989) book they discuss the Contraction Mapping Theorem. This theorem guarantees existence and uniqueness of the solution (one fixed point). The ...
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4 votes
Accepted

Economic growth in a DSGE model, despite mean-zero shocks

Yes, there are DSGE models that can be used for forecasting. These models typically have a particular kind of steady-state, which is, more precisely, called balanced growth path (BGP). On the BGP (in ...
  • 1,543
3 votes

What exactly is certainty equivalence in the context of DSGE models?

Intuitively, it means that the model has such characteristics that "the best we can say" about remaining uncertainty, is that it will be zero. From general experience, we know that it won't be zero, ...
3 votes
Accepted

intuition behind the blanchard kahn conditions?

The condition that unstable eigenvalues equal in number the control/decision/non-predetermined variables is equivalent to the requirement that a model possess the "saddle point property". Of more ...
3 votes
Accepted

What is the appeal of DSGE models?

To summarize what I wrote below, there seem to be at least two points: In the Smets and Wouters (ECB) research, which is apparently responsible for a lot of the fame of DSGE, they indeed found it ...
  • 3,818
3 votes

How to derive the measurement equation for the state-space representation of a DSGE model?

First, you can also have a state-space setup for a model which is not log-linearised. It is the combination of the solution of your model (that you get by using Sims, Klein, Binder-Pesaran, or ...
3 votes

Can Dynare solve general equilibrium (GE) models with non-convex adjustment costs?

It is generally not possible to make a sharp statement about the types of non-convex costs that Dynare can handle. Many different factors come into play about whether a model can be "solved" by ...
  • 724
3 votes

State of general equilibrium theories Post Blanchard 2008

To understand why macroeconomists use DSGE as a tool, in general, it's a good idea to read up on the Lucas critique. More colloquially, DSGE models provide macroeconomists with a laboratory that ...
  • 724
3 votes

Convert DSGE paper to structural econometrics, anything to be noted?

There's no correct method to do this. DSGE guys will estimate the model by doing something like this: plugging in priors for their parameters and then running an optimization that minimizes the ...
  • 2,608
3 votes
Accepted

Literature on DSGE models featuring a financial sector

This is actually one of the more exciting development in DSGE modelling since financial crisis. Including financial sector or friction is definitely a growing area of research and interest. ...
  • 48.8k
3 votes
Accepted

Separation rate

They consider a model with two islands: a Production island and a Leisure island. Every transition from a period $t$ to a period $t+1$ is split into two parts. People who are in the Production island ...
  • 8,662
2 votes

Log linearization of the technology dynamic

The shock process is already linear. any log linearisation will result in identical expression. The underlying non linear shock process can be something like this:$ $$ Z_t = Z^{(1-\rho)} Z_{t-1} e^{\...
  • 166
2 votes
Accepted

Evaluation around steady state for a specific DSGE Model

I found the error in my derivation: I mistakenly supposet that the steady state of $p_t+1$ equals $\bar{\rho}$. I did not recognize that p was different from $\rho$ because of the poor quality of my ...
2 votes

What methods - inspired by Haavelmo’s Structural Econometrics - can show that a partial equilibrium model is unreliable?

I can think of two big ways. Formal tests of model fit: If you are using SMM, GMM or indirect influence check out the J-stat. If you are using maximum likelihood you want a likelihood ratio. Bayesian ...
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2 votes
Accepted

Depreciation vs. obsolescence in RBC and New Keynesian DSGE models

On the empirical side, there might be answers for you in the national accounts. I only know about the french case : the french statistical institute (INSEE) has different depreciation data for ...
  • 170
2 votes

Good paper/article on the mechanisms in RBC vs New Keynesian models

If possible, clarifying what exactly you're most interested in might help answers be more on point and useful. Are you interested in the mechanisms that cause a one-period shock to last (and not just ...
  • 1,370
2 votes
Accepted

Basic New Keynesian Model - Price and Wage Level after shock

Try to give a look at what happens to inflation's IRF. If it stays positive for the whole horizon of the IRF then simply prices have increased over time at the inflation rate. I guess that any non-...
  • 106
2 votes

Differences between GMM and MSM?

While in GMM one uses theoretical analytical moments, in MSM one uses simulated theoretical moments instead. For GMM, [t]he method requires that a certain number of moment conditions were ...
2 votes

How to derive the measurement equation for the state-space representation of a DSGE model?

Hi: I can't speak for DSGE models specifically but, in more standard "rational expectations" econometrics, the measurement equation usually comes from some assumed linear relation between the ...
2 votes

Log-linear version of the uncovered interest rate parity

It’s derived as follows. First start with original equation. $$(1+i_t)=(1+i^*_t)\frac{S_{t+1}}{S_t}$$ Take natural logs of both sides: $$\ln(1+i_t)=\ln(1+i^*_t)+\ln(S_{t+1}) -\ln(S_t)$$ Now you ...
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