Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/250346
Year of Publication: 
2021
Series/Report no.: 
Cardiff Economics Working Papers No. E2021/22
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
We ask whether Bayesian estimation creates a potential estimation bias as compared with standard estimation techniques based on the data, such as maximum likelihood or indirect estimation. We investigate this with a Monte Carlo experiment in which the true version of a New Keynesian model may either have high wage/price rigidity or be close to pure √°exibility; we treat each in turn as the true model and create Bayesian estimates of it under priors from the true model and its false alternative. The Bayesian estimation of macro models may thus give very misleading results by placing too much weight on prior information compared to observed data; a better method may be Indirect estimation where the bias is found to be low.
Subjects: 
Bayesian
Maximum Likelihood
Indirect Inference
Estimation Bias
JEL: 
C11
E12
Document Type: 
Working Paper

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