Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70763
Authors: 
Waggoner, Daniel F.
Zha, Tao
Year of Publication: 
2012
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2010-18a
Abstract: 
We estimate a Markov-switching mixture of two familiar macroeconomic models: a richly parameterized dynamic stochastic general equilibrium (DSGE) model and a corresponding Bayesian vector autoregression (BVAR) model. We show that the Markov-switching mixture model dominates both individual models and improves the fit considerably. Our estimation indicates that the DSGE model plays an important role only in the late 1970s and the early 1980s. We show how to use the mixture model as a data filter for estimation of the DSGE model when the BVAR model is not identified. Moreover, we show how to compute the impulse responses to the same type of shock shared by the DSGE and BVAR models when the shock is identified in the BVAR model. Our exercises demonstrate the importance of integrating model uncertainty and parameter uncertainty to address potential model misspecification in macroeconomics.
Subjects: 
Markov-switching mixture
heterogenous models
regime-dependent weights
model uncertainty
parameter uncertainty
impulse responses
policy analysis
JEL: 
C52
E2
E4
Document Type: 
Working Paper

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