Online Estimation of DSGE Models

55 Pages Posted: 9 Mar 2020

See all articles by Michael D. Cai

Michael D. Cai

Northwestern University

Marco Del Negro

Federal Reserve Bank of New York

Edward Herbst

Board of Governors of the Federal Reserve System

Ethan Matlin

Federal Reserve Banks - Federal Reserve Bank of New York

Reca Sarfati

Federal Reserve Banks - Federal Reserve Bank of New York

Frank Schorfheide

University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); University of Pennsylvania - The Penn Institute for Economic Research (PIER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2020

Abstract

This paper illustrates the usefulness of sequential Monte Carlo (SMC) methods in approximating DSGE model posterior distributions. We show how the tempering schedule can be chosen adaptively, document the accuracy and runtime benefits of generalized data tempering for “online” estimation (that is, re-estimating a model as new data become available), and provide examples of multimodal posteriors that are well captured by SMC methods. We then use the online estimation of the DSGE model to compute pseudo-out-of-sample density forecasts and study the sensitivity of the predictive performance to changes in the prior distribution. We find that making priors less informative (compared to the benchmark priors used in the literature) by increasing the prior variance does not lead to a deterioration of forecast accuracy.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Cai, Michael D. and Del Negro, Marco and Herbst, Edward and Matlin, Ethan and Sarfati, Reca and Schorfheide, Frank, Online Estimation of DSGE Models (March 2020). NBER Working Paper No. w26826, Available at SSRN: https://ssrn.com/abstract=3550974

Michael D. Cai (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Marco Del Negro

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Edward Herbst

Board of Governors of the Federal Reserve System ( email )

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

Ethan Matlin

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Reca Sarfati

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Frank Schorfheide

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

HOME PAGE: http://www.econ.upenn.edu/~schorf

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania - The Penn Institute for Economic Research (PIER) ( email )

Philadelphia, PA
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
6
Abstract Views
98
PlumX Metrics