NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Assessing DSGE Model Nonlinearities

S. Borağan Aruoba, Luigi Bocola, Frank Schorfheide

NBER Working Paper No. 19693
Issued in December 2013
NBER Program(s):   EFG   ME

We develop a new class of nonlinear time-series models to identify nonlinearities in the data and to evaluate nonlinear DSGE models. U.S. output growth and the federal funds rate display nonlinear conditional mean dynamics, while inflation and nominal wage growth feature conditional heteroskedasticity. We estimate a DSGE model with asymmetric wage/price adjustment costs and use predictive checks to assess its ability to account for nonlinearities. While it is able to match the nonlinear inflation and wage dynamics, thanks to the estimated downward wage/price rigidities, these do not spill over to output growth or the interest rate.

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A data appendix is available at http://www.nber.org/data-appendix/w19693

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19693

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