DSGE Models with Student-<i>t</i>Errors

Chib, Siddhartha; Ramamurthy, Srikanth

doi:10.1080/07474938.2013.807152

Cited by 56 publications

(27 citation statements)

References 37 publications

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“…Chib and Ramamurthy [33] and Curdia, Del Negro and Greenwald [48] show that a Student's t-distribution for the innovations is also strongly favored by the data as it allows for rare large shocks. The latter authors makes the point that the time-variation in shock variances should contain both a low and a high frequency component.…”

Section: Allowing For Time-varying Volatilitymentioning

confidence: 99%

“…The time-varying volatility structure requires su¢ cient ‡exibility to account for a common low frequency trend on the one hand, and a more cyclical high frequency process that controls mainly the monetary and …nancial shocks on the other hand. 33 Accounting for the non-Gaussian stochastic structure drastically improves the log marginal likelihood of our models, but leaves the estimated parameters, i. 34 The Markov Switching volatility structure, by allowing for a mixture of normal distributions, gives more probability to the tails in general.…”

Section: Allowing For Time-varying Volatilitymentioning

confidence: 99%

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Challenges for Central Banks’ Macro Models

Lindé

Smets

Wouters

2016

Handbook of Macroeconomics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Working Paper series presents reports on matters in the sphere of activities of the Riksbank that are considered to be of interest to a wider public. Terms of use: Documents inThe papers are to be regarded as reports on ongoing studies and the authors will be pleased to receive comments.The opinions expressed in this article are the sole responsibility of the author(s) and should not be interpreted as reflecting the views of Sveriges Riksbank. Challenges for Central Banks'Macro Models AbstractIn this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has di¢ culty explaining both the depth and the slow recovery of the Great Recession. In order to better account for these observations, the paper analyses three extensions of the benchmark model. First, we estimate the model allowing explicitly for the zero lower bound constraint on nominal interest rates. Second, we introduce time-variation in the volatility of the exogenous disturbances to account for the non-Gaussian nature of some of the shocks. Third and …nally, we extend the model with a …nancial accelerator and allow for time-variation in the endogenous propagation of …nancial shocks. All three extensions require that we go beyond the linear Gaussian assumptions that are standard in most policy models. We conclude that these extensions go some way in accounting for features of the Great Recession and its aftermath, but they do not su¢ ce to address some of the major policy challenges associated with the use of non-standard monetary policy and macroprudential policies. JEL Classi…cation: E52, E58

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Section: Allowing For Time-varying Volatilitymentioning

confidence: 99%

Section: Allowing For Time-varying Volatilitymentioning

confidence: 99%

Challenges for Central Banks’ Macro Models

Lindé

Smets

Wouters

2016

Handbook of Macroeconomics

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“…Indeed, the disaster risk literature relies on the assumption that EIS is larger than one in order to 23 See for instance Campbell and Mankiw (1989), Ludvigson (1999), Yogo (2004). 24 Bansal and Yaron (2004) argue that ignoring time-varying consumption volatility leads to a downward bias in the macro estimates of the EIS, but Beeler and Campbell (2012) question the extent of the bias. 25 Blundell et al (1994) and Attanasio and Browning (1995) find that rich households tend to show a larger EIS.…”

Section: The Literature On Disaster Riskmentioning

confidence: 99%

Disaster risk and preference shifts in a New Keynesian model

Isoré

Szczerbowicz

2017

Journal of Economic Dynamics and Control

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This paper analyzes the effects of a change in a small but timevarying "disaster risk" à la Gourio (2012) in a New Keynesian model. In a real business cycle framework, the disaster risk has been successful in replicating observed moments of equity premia. However, responses of macroeconomic variables critically depend on the value of the elasticity of intertemporal substitution (EIS). In particular, we show here that an increase in the probability of disaster causes a recession only in case of an EIS larger than unity, which may be arbitrarily large. Nevertheless, we also find that incorporating sticky prices allows to conciliate recessionary effects of the disaster risk with a plausible value of the EIS. A higher disaster risk is then also associated with an increase in the discount factor and with deflation, making it consistent with the preference shock literature (Christiano et al., 2011).

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“…24 Moreover, some studies suggest that heterogeneity across agents is an important factor for the EIS estimation. 25 As an attempt to explore estimation differences The fact that the EIS is higher for countries with high stock market participation is important for asset pricing models.…”

Section: The Literature On Disaster Riskmentioning

confidence: 99%