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American Economic Review Vol. 99 No. 4 2009

Monetary Policy Analysis with Potentially Misspecified Models

Marco Del Negro1; Frank Schorfheide2

1 Research Department, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045. · 2 Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104-6297.

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).

DOI
10.1257/aer.99.4.1415
Volume
99
Issue
4
Pages
1415-1450
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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