Monetary policy analysis with potentially misspecified models
By: Marco Del Negro, Frank Schorfheide.
Contributors: Schorfheide, Frank.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13099.; Working paper series (National Bureau of Economic Research) -- working paper no. 13099.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 54
Subjects: Policy sciences -- Economic aspects -- United States; Policy sciences -- Evaluation -- Econometric models
Description: 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.
Notes: "May 2007"

Includes bibliographical references (p. 39-42).

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