How Structural Are Structural Parameters? [with Comments and Discussion]

This paper studies the question of the stability over time of the so-called "structural parameters" of dynamic stochastic general equilibrium (DSGE) models. To answer this question, we estimate a medium-scale DSGE model with real and nominal rigidities, using U.S. data. In our model, we al...

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Bibliographic Details
Published in:NBER macroeconomics annual 2007-01, Vol.22, p.83-167
Main Authors: Fernández-Villaverde, Jesús, Rubio-Ramírez, Juan F., Cogley, Timothy, Schorfheide, Frank
Format: Article
Language:English
Subjects:
Economic modeling
Economic models
Economic policy
Federal Reserve Bank
Inflation rates
Macroeconomic modeling
Modeling
Monetary policy
Nominal rigidities
Parametric models
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Summary:This paper studies the question of the stability over time of the so-called "structural parameters" of dynamic stochastic general equilibrium (DSGE) models. To answer this question, we estimate a medium-scale DSGE model with real and nominal rigidities, using U.S. data. In our model, we allow for parameter drifting and rational expectations of the agents with respect to this drift. We document that there is strong evidence that parameters change within our sample. We illustrate variations in the parameters describing the monetary policy reaction function and in the parameters characterizing the pricing behavior of firms and households. Moreover, we show how the movements in the pricing parameters are correlated with inflation. Thus, our results cast doubts on the empirical relevance of Calvo models.
ISSN:0889-3365
1537-2642
DOI:10.1086/ma.22.25554965