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Estimating Macroeconomic Models: A Likelihood Approach

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  • Rubio-Ramírez, Juan Francisco
  • Fernández-Villaverde, Jesús

Abstract

This paper shows how particle filtering allows us to undertake likelihood-based inference in dynamic macroeconomic models. The models can be nonlinear and/or non-normal. We describe how to use the output from the particle filter to estimate the structural parameters of the model, those characterizing preferences and technology, and to compare different economies. Both tasks can be implemented from either a classical or a Bayesian perspective. We illustrate the technique by estimating a business cycle model with investment-specific technological change, preference shocks, and stochastic volatility.

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  • Rubio-Ramírez, Juan Francisco & Fernández-Villaverde, Jesús, 2006. "Estimating Macroeconomic Models: A Likelihood Approach," CEPR Discussion Papers 5513, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5513
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    More about this item

    Keywords

    Dynamic macroeconomic models; Particle filtering; Nonlinear and/or non-normal models; Business cycle; stochastic volatility;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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