Bayesian Estimation of a DSGE Model with Asset Prices

40 Pages Posted: 21 Jun 2016

See all articles by Martin Kliem

Martin Kliem

Deutsche Bundesbank - Research Centre

Harald Uhlig

University of Chicago - Department of Economics

Date Written: 2013

Abstract

This paper presents a novel Bayesian method for estimating dynamic stochastic general equilibrium (DSGE) models subject to a constrained posterior distribution of the implied Sharpe ratio. We apply our methodology to a DSGE model with habit formation in consumption and leisure, using an estimate of the Sharpe ratio to construct the constraint. We show that the constrained estimation produces a quantitative model with both reasonable asset-pricing as well as business-cycle implications.

Keywords: Bayesian estimation, stochastic steady-state, prior choice, Sharpe ratio

JEL Classification: C11, E32, E44, G12

Suggested Citation

Kliem, Martin and Uhlig, Harald, Bayesian Estimation of a DSGE Model with Asset Prices (2013). Bundesbank Discussion Paper No. 37/2013, Available at SSRN: https://ssrn.com/abstract=2796932

Martin Kliem (Contact Author)

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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