Assessing DSGE Model Nonlinearities
62 Pages Posted: 30 Nov 2013
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Assessing DSGE Model Nonlinearities
Assessing DSGE Model Nonlinearities
Date Written: November 26, 2013
Abstract
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.
Keywords: DSGE Models, Time-series analysis, Nonlinear
JEL Classification: C11, C32, C52, E32
Suggested Citation: Suggested Citation