Adolfson, Malin Laséen, Stefan Lindé, Jesper Ratto, Marco
Year of Publication:
Sveriges Riksbank Working Paper Series No. 362
Sveriges Riksbank, Stockholm
In this paper, we study identification and misspecification problems in standard closed and open-economy empirical New-Keynesian DSGE models used in monetary policy analysis. We find that problems with model misspecification still appear to be a first-order issue in monetary DSGE models, and argue that it is problems with model misspecification that may benefit the most from moving from a classical to a Bayesian framework. We also argue that lack of identification should neither be ignored nor be assumed to affect all DSGE models. Fortunately, identification problems can be readily assessed on a case-by-case basis, by applying recently developed pre-tests of identification.
Bayesian estimation Monte-Carlo methods Maximum Likelihood Estimation DSGE Model Closed economy Open economy