Estimating DSGE model parameters in a small open economy: Do real-time data matter?

Issue: 1/2015

Jan Čapek

ESF MU, Lipová 41a, Brno

This paper investigates the differences between parameters estimated using real-time and those estimated with revised data. The models used are New Keynesian DSGE models of the Czech, Polish, Hungarian, Swiss, and Swedish small open econo-mies in interaction with the euro area. The paper also offers an analysis of data revisions of GDP growth and inflation and trend revisions of interest rates.
Data revisions are found to be unbiased and not autocorrelated in all countries. Inflation is usually measured more accurately in real-time than GDP growth, but this is not the case in the euro area. The results of the core analysis suggest that there are significant differences between parameter estimates using real-time data and those estimated using revised data. The model parameters that are most prone to significant differences be-tween real-time and revised estimations are habit in consumption and persistence of domestic supply, of demand, and of world-wide technology shocks. The impulse re-sponse analysis suggests that the model behavior based on real-time and revised data is different.

DOI: 10.1515/revecp-2015-0001
JEL: revision, recursive esti-mation, real-time data, DSGE model, Bayesian estimation
Keywords: F41, C82, C55, C11

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