DP12262 Tractable Likelihood-Based Estimation of Non-Linear DSGE Models

Author(s): Robert Kollmann
Publication Date: August 2017
Keyword(s): Estimation of non-linear DSGE models, observation equation inversion
JEL(s): C51, C63, C68, E37
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12262

This paper presents a simple and fast maximum likelihood estimation method for non-linear DSGE models that are solved using a second- (or higher-) order accurate approximation. The method requires that the number of observables equals the number of exogenous shocks. Exogenous innovations are extracted recursively by inverting the observation equation, which allows easy computation of the likelihood function.