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Evaluating and estimating a DSGE model for the United Kingdom

Author

Listed:
  • Harrison, Richard

    (Bank of England)

  • Oomen, Özlem

    (Bank of England)

Abstract
We build a small open economy dynamic stochastic general equilibrium model, featuring many types of nominal and real frictions that have become standard in the literature. In recent years it has become possible to estimate such models using Bayesian methods. These exercises typically involve augmenting a stochastically singular model with a number of shocks to structural equations to make estimation feasible, even though the motivation for the choice of these shocks is often unspecified. In an attempt to put this approach on a more formal basis, we estimate the model in two stages. First, we evaluate a calibrated version of the stochastically singular model. Then, we augment the model with structural shocks motivated by the results of the evaluation stage and estimate the resulting model using UK data using a Bayesian approach. Finally, we reassess the adequacy of this augmented and estimated model in reconciling the dynamics of the model with the data. Our findings suggest that the shock processes play a crucial role in helping to match the data.

Suggested Citation

  • Harrison, Richard & Oomen, Özlem, 2010. "Evaluating and estimating a DSGE model for the United Kingdom," Bank of England working papers 380, Bank of England.
    • Handle: RePEc:boe:boeewp:0380
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    DSGE models; model evaluation; Bayesian estimation; monetary policy;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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