How Structural are Structural Parameters?

50 Pages Posted: 23 Jun 2012

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department

Date Written: June 2007

Abstract

This paper studies how stable over time are the so-called "structural parameters" of dynamic stochastic general equilibrium (DSGE) models. To answer this question, we estimate a medium-scale DSGE model with real and nominal rigidities using U.S. data. In our model, we allow for parameter drifting and rational expectations of the agents with respect to this drift. We document that there is strong evidence that parameters change within our sample. We illustrate variations in the parameters describing the monetary policy reaction function and in the parameters characterizing the pricing behavior of firms and households. Moreover, we show how the movements in the pricing parameters are correlated with inflation. Thus, our results cast doubts on the empirical relevance of Calvo models.

Suggested Citation

Fernández-Villaverde, Jesús and Rubio-Ramirez, Juan Francisco, How Structural are Structural Parameters? (June 2007). NBER Working Paper No. w13166. Available at SSRN: https://ssrn.com/abstract=2089660

Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department ( email )

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HOME PAGE: http://www.econ.umn.edu/~rubio

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