Bayesian Prior Elicitation in DSGE Models: Macro- vs. Micro-Priors

49 Pages Posted: 16 Jan 2011

See all articles by Marco J. Lombardi

Marco J. Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department

Giulio Nicoletti

European Central Bank

Date Written: January 11, 2011

Abstract

Bayesian approaches to the estimation of DSGE models are becoming increasingly popular. Prior knowledge is normally formalized either be information concerning deep parameters’ values (‘microprior’) or some macroeconomic indicator, e.g. moments of observable variables (‘macroprior’). In this paper we introduce a non parametric prior which is elicited from impulse response functions. Results show that using either a microprior or a macroprior can lead to different posterior estimates. We probe into the details of our result, showing that model misspecification is to blame for that.

Keywords: DSGE Models, Bayesian Estimation, Prior Distribution, Impulse Response Function

JEL Classification: C11, C51, E30

Suggested Citation

Lombardi, Marco Jacopo and Nicoletti, Giulio, Bayesian Prior Elicitation in DSGE Models: Macro- vs. Micro-Priors (January 11, 2011). ECB Working Paper No. 1289, Available at SSRN: https://ssrn.com/abstract=1738317

Marco Jacopo Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
+41612809492 (Phone)

Giulio Nicoletti (Contact Author)

European Central Bank ( email )

Kaiserstrasse 29
Frankfurt am Main, Hessen 60311
Germany

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