Likelihood Evaluation of Models with Occasionally Binding Constraints

40 Pages Posted: 22 Apr 2019

See all articles by Pablo Cuba-Borda

Pablo Cuba-Borda

Board of Governors of the Federal Reserve System

Luca Guerrieri

Federal Reserve Board - Trade and Financial Studies

Matteo Iacoviello

Board of Governors of the Federal Reserve System

Molin Zhong

Board of Governors of the Federal Reserve System

Date Written: 2019-04-19

Abstract

Applied researchers interested in estimating key parameters of DSGE models face an array of choices regarding numerical solution and estimation methods. We focus on the likelihood evaluation of models with occasionally binding constraints. We document how solution approximation errors and likelihood misspecification, related to the treatment of measurement errors, can interact and compound each other.

Keywords: Measurement error, Solution error, Occasionally binding constraints, Particle filter

JEL Classification: C32, C53, C63

Suggested Citation

Cuba-Borda, Pablo and Guerrieri, Luca and Iacoviello, Matteo and Zhong, Molin, Likelihood Evaluation of Models with Occasionally Binding Constraints (2019-04-19). FEDS Working Paper No. 2019-028. Available at SSRN: https://ssrn.com/abstract=3375384 or http://dx.doi.org/10.17016/FEDS.2019.028

Pablo Cuba-Borda (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Luca Guerrieri

Federal Reserve Board - Trade and Financial Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2550 (Phone)

Matteo Iacoviello

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Molin Zhong

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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