Comparing Dynamic Equilibrium Models to Data

32 Pages Posted: 1 Nov 2001

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: October 2001

Abstract

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, we 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 distance will have the highest posterior probability. Second, we 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.

Suggested Citation

Fernández-Villaverde, Jesús and Rubio-Ramirez, Juan Francisco, Comparing Dynamic Equilibrium Models to Data (October 2001). PIER Working Paper No. 01-037. Available at SSRN: https://ssrn.com/abstract=288332 or http://dx.doi.org/10.2139/ssrn.288332

Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department ( email )

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United States
404-498-8057 (Phone)
404-498-8956 (Fax)

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

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