Jump to ContentJump to Main Navigation
Show Summary Details
In This Section

Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

4 Issues per year


SCImago Journal Rank (SJR) 2015: 0.143
Source Normalized Impact per Paper (SNIP) 2015: 0.273
Impact per Publication (IPP) 2015: 0.121

Open Access
Online
ISSN
1804-1663
See all formats and pricing
In This Section
Volume 16, Issue 2 (Jun 2016)

Issues

A Proposal for a Flexible Trend Specification in DSGE Models

Martin Slanicay
  • Masaryk University, Faculty of Economics and Administration, Department of Economics, Lipová 41a, Brno 602 00
  • Email:
Published Online: 2016-06-28 | DOI: https://doi.org/10.1515/revecp-2016-0006

Abstract

In this paper I propose a flexible trend specification for estimating DSGE models on log differences. I demonstrate this flexible trend specification on a New Keynesian DSGE model of two economies, which I consequently estimate on data from the Czech economy and the euro area, using Bayesian techniques. The advantage of the trend specification proposed is that the trend component and the cyclical component are modelled jointly in a single model. The proposed trend specification is flexible in the sense that smoothness of the trend can be easily modified by different calibration of some of the trend parameters. The results suggest that this method is capable of finding a very reasonable trend in the data. Moreover, comparison of forecast performance reveals that the proposed specification offers more reliable forecasts than the original variant of the model.

This article offers supplementary material which is provided at the end of the article.

Keywords : DSGE model; trend specification; Bayesian estimation

References

  • ADOLFSON, M., LASEEN, S., LINDE, J., VILLANI, M. (2007). Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through. Journal of International Economics, 72(2), pp. 481-511.CrossrefGoogle Scholar

  • AGUIAR, M., GOPINATH, G. (2007). Emerging Market Business Cycles: The Cycle Is the Trend. Journal of Political Economy, 115(1), pp. 69-102.CrossrefGoogle Scholar

  • ANDRLE, M. (2008). The Role of Trends and Detrending in DSGE Models. MPRA Paper No. 13289.Google Scholar

  • BRŮHA, J. (2011). An Empirical Small Labor Market Model for the Czech Economy. Finance a úvěr - Czech Journal of Economics and Finance, 61(5), pp. 434-449.Google Scholar

  • CALVO, G. (1983). Staggered Prices in a Utility Maximizing Framework. Journal of Monetary Economics, 12(3), pp. 383-398. DOI: 10.1016/0304-3932(83)90060-0CrossrefGoogle Scholar

  • CANOVA, F. (1998). Detrending and Business Cycle Facts. Journal of Monetary Economics, 41(3), pp. 475-512. DOI: 10.1016/S0304-3932(98)00006-3CrossrefWeb of ScienceGoogle Scholar

  • CANOVA, F. (2013). Bridging Cyclical DSGE Models and the Raw Data. CEPR Discussion Papers 9379.Google Scholar

  • CANOVA, F., FERRONI, F. (2011). Multiple Filtering Devices for the Estimation of Cyclical DSGE Models. Quantitative Economics, 2(1), pp. 73-98. DOI: 10.3982/QE36Web of ScienceCrossrefGoogle Scholar

  • COGLEY, T. (2001). Estimating and Testing Rational Expectations Models when the Trend Specification Is Uncertain. Journal of Economic Dynamics and Control, 25(10), pp. 1485-1525. DOI: 10.1016/S0165-1889(99)00083-4CrossrefGoogle Scholar

  • KOLASA, M. (2009). Structural Heterogeneity or Asymmetric Shocks? Poland and the Euro Area through the Lens of a Two-country DSGE Model. Economic Modelling, 26(6), pp. 1245-1269. DOI: 10.1016/j.econmod.2009.06.001Web of ScienceCrossrefGoogle Scholar

  • KOOP, G. (2003). Bayesian Econometrics. Chichester: John Wiley & Sons Ltd.Google Scholar

  • McGRATTAN, E. R. (2010). Measurement with Minimal Theory. Quarterly Review, 33(1), pp. 2-13.Google Scholar

  • SLANICAY, M. (2012). A Proposal of Flexible Trend Specification in DSGE Models. In Ramík, J., Stavárek, D., Proceedings of 30th International Conference Mathematical Methods in Economics. Karviná: Silesian University, pp. 811-816.Google Scholar

  • SMETS, F., WOUTERS, R. (2003). An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area. Journal of the European Economic Association, 1(5), pp. 1123-1175. DOI: 10.1162/154247603770383415CrossrefGoogle Scholar

  • WHELAN, K. (2006). New Evidence on Balanced Growth, Stochastic Trends, and Economic Fluctuations. MPRA Paper No. 5910.Google Scholar

About the article

Received: 2015-06-12

Revised: 2016-06-16

Accepted: 2015-08-31

Published Online: 2016-06-28

Published in Print: 2016-06-01


Citation Information: Review of Economic Perspectives, ISSN (Online) 1804-1663, DOI: https://doi.org/10.1515/revecp-2016-0006.

Export Citation

© by Martin Slanicay. This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License. BY-NC-ND 4.0

Supplementary Article Materials

Comments (0)

Please log in or register to comment.
Log in