Monetary Policy Analysis with Potentially Misspecified Models

摘要

Policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models faces two challenges: estimation of parameters that are relevant for policy trade-offs, and treatment of the deviations from the cross-equation restrictions. Using post-1982 US data, we study the robustness of the policy prescriptions from a state-of-the-art DSGE model with respect to two approaches to model misspecification pursued in the recent literature: (ⅰ) adding shocks to the DSGE model and/or generalizing the processes followed by these shocks; and (ⅱ) explicit modeling of deviations from cross-equation restrictions (DSGE-VAR).