Modern policy analysis makes extensive use of dynamic stochastic general equilibrium (DSGE) models. These models differ significantly from earlier generations of large-scale econometric models. I review what I see as major progress in the ability of economists to conduct model-based policy analysis. This progress has come through the evolution in the types of models being used and in a refineme...

We outline in turn criticisms made by econometricians of the methods used in empirical business-cycle research and then criticisms made by business-cycle researchers of some methods used by econometricians. The aim is to clarify and in some cases correct these criticisms. Overall there is no conflict in using rigourous statistical procedures to study modern dynamic stochastic general equilibriu...

An increasing literature has been concerned that the dynamics of the economy keeps switching and that, in particular, it is important to allow time variation in the degree of Calvo stickiness. We investigate this with a Markov-switching Dynamic Stochastic General Equilibrium model and show that there is little gain when allowing for such time variation. As a result we recommend to use a constan...

This Paper describes a procedure for constructing theory restricted prior distributions for BVAR models. The Bayes Factor, which is obtained without any additional computational effort, can be used to assess the plausibility of the restrictions imposed on the VAR parameter vector by competing DSGE models. In other words, it is possible to rank the amount of abstraction implied by each DSGE mode...

Estimation of dynamic stochastic general equilibrium (DSGE) models using state space methods implies vector autoregressive moving average (VARMA) representations of the observables. Following Lippi and Reichlin’s (1994) analysis of nonfundamentalness, this note highlights the potential dangers of non-uniqueness, both of estimates of deep parameters and of structural innovations. ∗Department of ...

We consider both discrete and continuous time finite state-action stochastic games. In discrete time stochastic games, it is known that a stationary BlackwellNash equilibrium (BNE) exists for a single controller additive reward (SC-AR) stochastic game which is a special case of a general stochastic game. We show that, in general, the additive reward condition is needed for the existence of a BN...

We use mixed-frequency (quarterly-monthly) data to estimate a dynamic stochastic general equilibrium model embedded with the financial accelerator mechanism à la Bernanke et al. (1999). find that can work very differently at monthly frequency compared quarterly frequency; is, we document its inversion. That is because aggregating into leads large biases in estimated parameters and, as consequen...

This paper argues that the reason that the DSGE model, which has proved so successful in convincing academic economists of its value, has made relatively few inroads into the undergraduate teaching sphere is that it fails to allow for the development of higher order educational objectives in students. The qualities which make it attractive to academics, such as the purity of its assumptions and...

In this paper we describe a numerical solution of the consumer's life-cycle problem based on value function iteration. The advantage of our approach is that it retains the versatility of the value function iteration approach and achieves a high degree of accuracy without resorting to the very computationally burdensome task of calculating a very "ne grid. There are two innovations, the "rst is ...

We study the relation between macroeconomic fundamentals and asset pricing through the lens of a state of the art dynamic stochastic general equilibrium (DSGE) model considered in Christiano, Trabandt and Walentin (2011). We provide a full-information Bayesian estimation of the model using macro variables and extract three fundamental shocks to the economy through the model: neutral technology ...