Working Paper: NBER ID: w13166
Authors: Jess Fernández-Villaverde; Juan F. Rubio-Ramirez
Abstract: This paper studies how stable over time are the so-called "structural parameters" of dynamic stochastic general equilibrium (DSGE) models. To answer this question, we estimate a medium-scale DSGE model with real and nominal rigidities using U.S. data. In our model, we allow for parameter drifting and rational expectations of the agents with respect to this drift. We document that there is strong evidence that parameters change within our sample. We illustrate variations in the parameters describing the monetary policy reaction function and in the parameters characterizing the pricing behavior of firms and households. Moreover, we show how the movements in the pricing parameters are correlated with inflation. Thus, our results cast doubts on the empirical relevance of Calvo models.
Keywords: No keywords provided
JEL Codes: C11; C15; E10; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Appointment of Volcker (E65) | Increased aggressiveness of monetary policy (E52) |
| Changes in parameters controlling nominal rigidity and indexation of prices and wages (E64) | Correlation with inflation (E31) |
| Lower rigidities (D43) | Higher inflation (E31) |
| Higher inflation (E31) | Lower rigidities (D43) |
| Changes in structural parameters (L16) | Empirical relevance of Calvo models (C54) |