Working Paper: NBER ID: w13741
Authors: Marco Del Negro; Frank Schorfheide
Abstract: The paper discusses prior elicitation for the parameters of dynamic stochastic general equilibrium (DSGE) models, and provides a method for constructing prior distributions for a subset of these parameters from beliefs about the moments of the endogenous variables. The empirical application studies the role of price and wage rigidities in a New Keynesian DSGE model and finds that standard macro time series cannot discriminate among theories that differ in the quantitative importance of nominal frictions.
Keywords: DSGE models; Bayesian methods; Nominal rigidities
JEL Codes: C11; C32; E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| standard macro time series data post-1982 (E39) | inability to discriminate among different theories regarding the quantitative significance of nominal rigidities (C54) |
| priors (C11) | influence on posterior estimates of rigidity parameters (C51) |
| choice of priors (C11) | sensitivity of empirical results to prior specifications (C51) |
| macroeconomic data (E01) | insufficiently informative conclusions about necessity of nominal rigidities (C54) |
| elicitation of priors (D80) | meaningful insights from DSGE models (E13) |
| model comparison results (C52) | not robust to choice of prior for exogenous shock processes (C51) |