Comparing Dynamic Equilibrium Economies to Data

FRB of Atlanta Working Paper No. 2001-23

32 Pages Posted: 6 Dec 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: November 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, the authors 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 will have the highest posterior probability. Second, they 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.

Keywords: Bayesian inference, asymptotics, cattle cycle

JEL Classification: C11, C15, C51, C52

Suggested Citation

Fernández-Villaverde, Jesús and Rubio-Ramirez, Juan Francisco, Comparing Dynamic Equilibrium Economies to Data (November 2001). FRB of Atlanta Working Paper No. 2001-23. Available at SSRN: https://ssrn.com/abstract=292401 or http://dx.doi.org/10.2139/ssrn.292401

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

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