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American Economic Review: Vol. 99 No. 4 (September 2009)

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Monetary Policy Analysis with Potentially Misspecified Models

Article Citation

Del Negro, Marco, and Frank Schorfheide. 2009. "Monetary Policy Analysis with Potentially Misspecified Models." American Economic Review, 99(4): 1415-50.

DOI: 10.1257/aer.99.4.1415

Abstract

Policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models faces two challenges: estimation of parameters that are relevant for policy trade-offs, and treatment of the deviations from the cross-equation restrictions. Using post-1982 US data, we study the robustness of the policy prescriptions from a state-of-the-art DSGE model with respect to two approaches to model misspecification pursued in the recent literature: (i) adding shocks to the DSGE model and/or generalizing the processes followed by these shocks; and (ii) explicit modeling of deviations from cross-equation restrictions (DSGE-VAR). (JEL C51, E13, E43, E52, E58)

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Authors

Del Negro, Marco (Federal Reserve Bank of New York)
Schorfheide, Frank (U PA)

JEL Classifications

C51: Model Construction and Estimation
E13: General Aggregative Models: Neoclassical
E43: Determination of Interest Rates; Term Structure of Interest Rates
E52: Monetary Policy
E58: Central Banks and Their Policies


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