Forming Priors for DSGE Models (and How It Affects the Assessment of Nominal Rigidities)

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Staff Reports

Forming Priors for DSGE Models (and How It Affects the Assessment of Nominal Rigidities)

March 2008 Number 320

JEL classification: C32, E30

Authors: Marco Del Negro and Frank Schorfheide

This paper discusses prior elicitation for the parameters of dynamic stochastic general equilibrium (DSGE) models and provides a method for constructing prior distributions for a subset of these parameters from beliefs about the moments of the endogenous variables. The empirical application studies the role of price and wage rigidities in a New Keynesian DSGE model and finds that standard macro time series cannot discriminate among theories that differ in the quantitative importance of nominal frictions.

Available only in PDF PDF

39 pages / 378 kb

For a published version of this report, see Marco Del Negro and Frank Schorfheide,"Forming Priors for DSGE Models (and How It Affects the Assessment of Nominal Rigidities)," Journal of Monetary Economics 55, no. 7 (October 2008): 1191-208.

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