Skip to main content
  • This website sets cookies on your device. To find out more about how we use cookies please refer to our Privacy and Cookie Policy. By continuing to use the site, we’ll assume that you are content for us to set these on your device.
  • Close
Home > Research > Working Paper No. 507: Estimating time-varying DSGE models using minimum distance methods - Liudas Giraitis, George Kapetanios, Konstantinos Theodoridis and Tony Yates
 

Working Paper No. 507: Estimating time-varying DSGE models using minimum distance methods - Liudas Giraitis, George Kapetanios, Konstantinos Theodoridis and Tony Yates

22 August 2014

​Working Paper No. 507
Estimating time-varying DSGE models using minimum distance methods
(1.4MB)
Liudas Giraitis, George Kapetanios, Konstantinos Theodoridis and Tony Yates 

This paper uses kernel methods to estimate a seven variable time-varying (TV) vector autoregressive (VAR) model on the US data set constructed by Smets and Wouters. We use an indirect inference method to map from this TV VAR to time variation in implied dynamic stochastic general equilibrium (DSGE) parameters. We find that many parameters change substantially, particularly those defining nominal rigidities, habits and investment adjustment costs. In contrast to the ‘Great Moderation’ literature our monetary policy parameter estimates suggest that authorities tried to deliver a low and stable inflation from 1975 onwards. However, the severe adverse supply shocks in the 70s could have caused these policies to fail.

Share