Working Paper: NBER ID: w16781
Authors: Frank Schorfheide
Abstract: Estimated dynamic stochastic equilibrium (DSGE) models are now widely used for empirical research in macroeconomics as well as for quantitative policy analysis and forecasting at central banks around the world. This paper reviews recent advances in the estimation and evaluation of DSGE models, discusses current challenges, and provides avenues for future research.
Keywords: DSGE models; Bayesian inference; monetary policy; welfare effects; parameter estimation
JEL Codes: C32; C50; E30; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in the central bank's target inflation rate (E52) | Welfare (I38) |
| Bayesian analysis of a small-scale New Keynesian DSGE model (C11) | Changes in the central bank's target inflation rate impacts Welfare (E52) |
| New Keynesian friction and monetary policy shocks (E12) | Trade-off for policymakers (H19) |
| Optimal long-run inflation rate (E31) | Balances the distortions caused by New Keynesian frictions (D50) |
| Empirical illustration using U.S. data from 1965 to 2005 (C80) | Demonstrates ability of DSGE models to capture dynamics of macroeconomic variables (E13) |
| Predictions of DSGE models rely on theoretical extrapolation (E13) | Introduces uncertainty in policy predictions (D89) |