NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Monetary Policy Analysis with Potentially Misspecified Models

Marco Del Negro, Frank Schorfheide

NBER Working Paper No. 13099
Issued in May 2007
NBER Program(s):   EFG   ME

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.

download in pdf format
   (395 K)

email paper

This paper is available as PDF (395 K) or via email.

An data appendix is available at http://www.nber.org/data-appendix/w13099

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13099

Published: 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

Users who downloaded this paper also downloaded these:
Giannoni w11942 Robust Optimal Policy in a Forward-Looking Model with Parameter and Shock Uncertainty
Lorenzoni w12898 News Shocks and Optimal Monetary Policy
Diamond and Rajan w15197 Illiquidity and Interest Rate Policy
Woodford w13716 Forecast Targeting as a Monetary Policy Strategy: Policy Rules in Practice
Farmer, Waggoner, and Zha w12965 Understanding the New-Keynesian Model when Monetary Policy Switches Regimes
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us