DSGE Approach Research Articles

Pricing Models: A Bayesian DSGE Approach for the U.S. Economy

This paper compares and estimates three pricing mechanisms in the context of a small DSGE model of the U.S. economy. We interpret our results as favoring the pricing mechanism presented in Wolman (1999 Wolman model) over the New Keynesian model with indexation (Gali and Gertler 1999, Smets and Wouters 2004a) and the sticky information model of Mankiw and Reis (2002). The key factor that explains the performance of the Wolman model is that the data reject the key assumption of the New Keynesian model that the firm's probability of price change is constant over time and independent of the contract's vintage. Our results also show that incorporating indexation in the New Keynesian model represents a poor expedient in matching the autocorrelation function of the inflation process over the last 20 years.

Assessing the Impact of a Change in the Composition of Public Spending: A DSGE Approach

Assessing the Impact of a Change in the Composition of Public Spending: A DSGE Approach

Assessing the Impact of a Change in the Composition of Public Spending: A DSGE Approach

Assessing the Impact of a Change in the Composition of Public Spending: A DSGE Approach

Shocks and Frictions in Us Business Cycles: A Bayesian DSGE Approach

Using a Bayesian likelihood approach, we estimate a dynamic stochastic general equilibrium model for the US economy using seven macro-economic time series. The model incorporates many types of real and nominal frictions and seven types of structural shocks. We show that this model is able to compete with Bayesian Vector Autoregression models in out-of-sample prediction. We investigate the relative empirical importance of the various frictions. Finally, using the estimated model we address a number of key issues in business cycle analysis: What are the sources of business cycle fluctuations? Can the model explain the cross-correlation between output and inflation? What are the effects of productivity on hours worked? What are the sources of the “Great Moderation”?

Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach

Using a Bayesian likelihood approach, we estimate a dynamic stochastic general equilibrium model for the US economy using seven macro-economic time series. The model incorporates many types of real and nominal frictions and seven types of structural shocks. We show that this model is able to compete with Bayesian Vector Autoregression models in out-of-sample prediction. We investigate the relative empirical importance of the various frictions. Finally, using the estimated model we address a number of key issues in business cycle analysis: What are the sources of business cycle fluctuations? Can the model explain the cross-correlation between output and inflation? What are the effects of productivity on hours worked? What are the sources of the Great Moderation?

La modélisation macro-économétrique dynamique

Cet article présente les enjeux et controverses de la modélisation macroéconométrique et discute des apports et des limites des différentes méthodes quantitatives. Nous exposons dans un premier temps la critique de Sims et la critique de Lucas. Ces deux critiques ont donné lieu à deux approches de la modélisation. D’un côté, l’approche VAR Structurel permet de modéliser à l’aide d’un nombre de restrictions minimal un ensemble de variables macro-économiques et d’effectuer simplement différents exercices quantitatifs (prévisions, multiplicateurs dynamiques de politique économique). D’un autre côté, l’approche MEGIS considère des modèles dynamiques dont les formes réduites sont déduites d’un problème dynamique d’optimisation sous différentes contraintes. Nous exposons ensuite les différentes méthodes d’évaluation quantitative de ces modèles et nous discutions de leurs apports et limites.

Voies de la modélisation macro-économétrique?

Ways of Macroeconometrics Modelling The aim of this paper is to present various routes of macro-econometric modelling and to discuss their advantages and limits. We first review the main properties of macro-econometric models and discuss the main reasons which led to their gradual neglecting, at least in the academic world. We then present the VAR methodology and we show that this approach can suffer from important limits. Next, we present the DSGE approach and discuss some econometric problems. Finally, we study the links between descriptive and structural approaches in macro- modelling.

Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach

AbstractThis paper estimates a DSGE model with many types of shocks and frictions for both the US and the euro area economy over a common sample period (1974–2002). The structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies, differences in the propagation mechanism of those shocks, or differences in the way the central bank responds to those economic developments. Our main conclusion is that each of these characteristics is remarkably similar across both currency areas. Copyright © 2005 John Wiley & Sons, Ltd.

Comparing Shocks and Frictions in Us and Euro Area Business Cycles: A Bayesian DSGE Approach

This paper estimates a DSGE model with many types of shocks and frictions for both the US and the euro area economy over a common sample period (1974-2002). The structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies, differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments. Our main conclusion is that each of those characteristics is remarkably similar across both currency areas.