TY  - JOUR
AU  - Negro,Marco Del
AU  - Schorfheide,Frank
TI  - Monetary Policy Analysis with Potentially Misspecified Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13099
PY  - 2007
Y2  - May 2007
UR  - http://www.nber.org/papers/w13099
L1  - http://www.nber.org/papers/w13099.pdf
N1  - Author contact info:
Marco Del Negro
Federal Reserve Bank of New York
33 Liberty Street
NY NY 10045
E-Mail: marco.delnegro@ny.frb.org

Frank Schorfheide
University of Pennsylvania
Department of Economics
3718 Locust Walk
McNeil 525
Philadelphia, PA 19104-6297
Tel: 215/898-8486
Fax: 215/573-2057
E-Mail: schorf@ssc.upenn.edu
AB  - 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.
ER  -