Cardiff University | Prifysgol Caerdydd ORCA
Online Research @ Cardiff 
WelshClear Cookie - decide language by browser settings

DSGE-based priors for BVARs and quasi-Bayesian DSGE estimation

Filippeli, Thomai, Harrison, Richard and Theodoridis, Konstantinos 2020. DSGE-based priors for BVARs and quasi-Bayesian DSGE estimation. Econometrics and Statistics 16 , pp. 1-27. 10.1016/j.ecosta.2018.12.002

PDF - Accepted Post-Print Version
Download (837kB) | Preview


A new method for estimating Bayesian vector autoregression (VAR) models using priors from a dynamic stochastic general equilibrium (DSGE) model is presented. The DSGE model priors are used to determine the moments of an independent Normal-Wishart prior for the VAR parameters. Two hyper-parameters control the tightness of the DSGE-implied priors on the autoregressive coeficients and the residual covariance matrix respectively. Selecting the values of the hyper-parameters that maximize the marginal likelihood of the Bayesian VAR provides a method for isolating subsets of DSGE parameter priors that are at odds with the data. The ability of the new method to correctly detect misspecified DSGE priors is illustrated using a Monte Carlo experiment. The method gives rise to a new `quasi-Bayesian' estimation approach: posterior estimates of the DSGE parameter vector can be recovered from the BVAR posterior estimates. An empirical application on US data reveals economically meaningful differences in posterior parameter estimates when comparing the quasi-Bayesian estimator with Bayesian maximum likelihood. The new method also indicates that the DSGE prior implications for the residual covariance matrix are at odds with the data.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Elsevier
ISSN: 2452-3062
Date of First Compliant Deposit: 17 January 2019
Date of Acceptance: 23 December 2018
Last Modified: 23 Sep 2020 13:08

Actions (repository staff only)

Edit Item Edit Item


Downloads per month over past year

View more statistics