Monetary Policy Analysis with Potentially Misspecified Models
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 estimated deviations from the cross-equation restrictions. This paper develops and explores policy analysis approaches that are either based on a generalized shock structure for the DSGE model or the explicit modelling of deviations from cross-equation restrictions. Using post-1982 U.S. data we first quantify the degree of misspecification in a state-of-the-art DSGE model and then document the performance of different interest-rate feedback rules. We find that many of the policy prescriptions derived from the benchmark DSGE model are robust to the various treatments of misspecifications considered in this paper, but that quantitatively the cost of deviating from such prescriptions varies substantially.
-
-
Copy CitationMarco Del Negro and Frank Schorfheide, "Monetary Policy Analysis with Potentially Misspecified Models," NBER Working Paper 13099 (2007), https://doi.org/10.3386/w13099.Download Citation
-
Published Versions
Marco Del Negro & Frank Schorfheide, 2009.
"Monetary Policy Analysis with Potentially Misspecified Models,"
American Economic Review,
American Economic Association, vol. 99(4), pages 1415-50, September.
citation courtesy of 
Related
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
