# Tag Info

## Hot answers tagged dsge

7

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 use some sort of data to estimate the parameters that govern their model. Longer Answer What is a DSGE model? A DSGE model is a series of equations (and ...

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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 monetary policy rule) exhibited, for instance, in Gali's textbook. In most variants of this simple model, a temporary increase in government expenditure will ...

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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, they focus exclusively on recursive methods, but (perhaps) the lion’s share of dynamic problems in economics are solved in this way. There is also a treatment ...

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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 your case this means that $\phi>1$. Therefore, the series would converge not to zero. Second, an interest rate rule should try to offset fluctuations. This ...

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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 aggregate consumption, and utility is given by $u \left( \bar{C} \right)$. It's easy to check that the marginal rate of substitution between goods $j$ and $k$ is ...

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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 with fixed cost is typically non-smooth, and its behavior away from the steady state may be very different, if e.g. the firm switches from investing to not ...

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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 distance between model and data moments while maximizing the log likelihood from the priors. The data moments for them will be well known values of variances and ...

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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 Dynare or not. Is the steady-state correctly defined? Is the model stationary? Is the model differentiable everywhere in the ergodic set? Are the number of ...

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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 model testing is similar to likelihood ratios, but more complicated. Many of the DSGE models were rejected on these bases (you can see Sargent discussing it ...

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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 allows quantitative comparison (and ranking) of different economic policies. Further, the process of writing a model disciplines thinking: if one cannot write down ...

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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-degenerate price level (nominal!) is compatible with such model structure, as its system is written down in growth rates, as that's what loglinearised variables ...

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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 specified for the model. These moment conditions are functions of the model parameters and the data, such that their expectation is zero at the true values of the ...

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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, but the information we possess does not permit us to say anything else than that it will be zero. The even deeper assumption here is that the information and ...

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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 interest is why economists generally want their models to possess such a property, something that holds for the DSGE models. In Economics we call models with ...

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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 different types of capital (e.g. buildings, machines, patents) and for different sectors. These data are supposed to reflect both physical depreciation and "normal ...

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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 just use the following: $$s_t=\ln(S_t)$$ And use the well known fact that for small values of $i$ the following approximation holds: $$\ln(1+i)\approx i$$ And ...

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Is there future for DSGE? Well, DSGE stands for dynamic stochastic general equilibrium models. You can’t really model time series appropriately without the dynamic stochastic part, and when it comes to general equilibrium there are economists who think that this approach does not really capture all interesting questions, as in many cases it might be more ...

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Most DSGE models don’t model heterogeneity in individual labor market. Although I suppose you could do that if you would really want to but, it would be incredibly data intensive to actually estimate. You can have some DSGE models with endogenous growth where human capital accumulation plays a role but most of them are based on just exogenous technological ...

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On the Equivalence of Private and Public Money is a 2019 working paper by Brunnermeier and Niepelt that addresses this issue: We propose a generic model of money and liquidity. We provide sufficient conditions under which a swap of private (inside) against public (outside) money leaves the equilibrium allocation and price system unchanged. We apply ...

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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 superior in forecasting accuracy to (B)VARs, especially long-term. On the other hand, other research (including some by other ECB researchers) doesn't seem to be ...

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After asking this same question on the dynare forum, I got the answer that it's really a typo, and I should augment the state vector. The interesting thing is that afterwards, I rerun the Gensys function of Sims(2002), and I got a solution for an indeterminate model, which is a bit strange. Augmenting the state vector by a lag from a previously already ...

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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 immediately dissipate)? Or are you interested in understanding some of the reasons that a shock to one variable (say technological progress) leads to changes in ...

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Many macroeconomists have a somewhat cavalier attitude towards checking the validity of linearization methods, but definitely not all of them. For an example of the approximation issues being taken seriously, see Appendix A.3 on "Log-Linearization and Determinacy of Equilibrium" in the book Interest and Prices by Michael Woodford.

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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 printout. Reading the paper again on a screen I immediately spotted the mistake.

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