Comparing Dynamic Equilibrium Economies to Data
University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)
Juan Francisco Rubio-Ramirez
Duke University - Department of Economics; Federal Reserve Bank of Atlanta - Research Department
FRB of Atlanta Working Paper No. 2001-23
This paper studies the properties of the Bayesian approach to estimation and comparison of dynamic equilibrium economies. Both tasks can be performed even if the models are nonnested, misspecified, and nonlinear. First, the authors show that Bayesian methods have a classical interpretation: asymptotically the parameter point estimates converge to their pseudotrue values, and the best model under the Kullback-Leibler will have the highest posterior probability. Second, they illustrate the strong small sample behavior of the approach using a well-known application: the U.S. cattle cycle. Bayesian estimates outperform maximum likelihood results, and the proposed model is easily compared with a set of BVARs.
Number of Pages in PDF File: 32
Keywords: Bayesian inference, asymptotics, cattle cycle
JEL Classification: C11, C15, C51, C52working papers series
Date posted: December 6, 2001
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