Empirical Asset Pricing in a DSGE Framework: Reconciling Calibration and Econometrics using Partial Indirect Inference

66 Pages Posted: 17 Aug 2020

See all articles by Joachim Grammig

Joachim Grammig

Eberhard Karls Universität Tübingen; Centre for Financial Research (CfR); Center for Financial Studies (CfS)

Julie Schnaitmann

University of Konstanz - Department of Economics

Dalia Elshiaty

University of Tuebingen

Date Written: February 4, 2020

Abstract

This paper aims at a critical assessment of the DSGE asset pricing approach. By employing partial indirect inference, we acknowledge that parts of a model are misspecified, while others retain the claim to capture economic reality, namely the ability to price assets traded in real markets. Consequently, we use binding functions that facilitate the consistent estimation of the structural model parameters of interest (concerning investor preferences), while treating others (governing macroeconomic dynamics) as nuisance parameters that are calibrated. The results of our empirical analysis are not unfavorable for the DSGE asset pricing approach, but they also indicate that the very positive interpretation of calibration results, in particular regarding the resolution of asset pricing puzzles, should be taken with a grain of salt.

Keywords: empirical asset pricing, DSGE model, partial indirect inference, simulation-based estimation

JEL Classification: C52, C58, G12

Suggested Citation

Grammig, Joachim and Schnaitmann, Julie and Elshiaty, Dalia, Empirical Asset Pricing in a DSGE Framework: Reconciling Calibration and Econometrics using Partial Indirect Inference (February 4, 2020). Available at SSRN: https://ssrn.com/abstract=3648085 or http://dx.doi.org/10.2139/ssrn.3648085

Joachim Grammig

Eberhard Karls Universität Tübingen ( email )

Mohlstrasse 36
D-72074 Tübingen, 72074
Germany

HOME PAGE: http://www.uni-tuebingen.de/uni/wwo/Grammig/grammigeng.html

Centre for Financial Research (CfR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Center for Financial Studies (CfS) ( email )

Taunusanlage 6
Frankfurt/Germany, D-60329
Germany

Julie Schnaitmann (Contact Author)

University of Konstanz - Department of Economics ( email )

Konstanz, 78457
Germany

Dalia Elshiaty

University of Tuebingen ( email )

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

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