DP6373 Euro Area Inflation Persistence in an Estimated Nonlinear DSGE Model

Author(s): Giovanni Amisano, Oreste Tristani
Publication Date: June 2007
Keyword(s): Bayesian estimation, DSGE models, inflation persistence, second order approximations, sequential Monte Carlo
JEL(s): C11, C15, E31, E32, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6373

We estimate the approximate nonlinear solution of a small DSGE model on euro area data, using the conditional particle filter to compute the model likelihood. Our results are consistent with previous findings, based on simulated data, suggesting that this approach delivers sharper inference compared to the estimation of the linearised model. We also show that the nonlinear model can account for richer economic dynamics: the impulse responses to structural shocks vary depending on initial conditions selected within our estimation sample.