Title: Comment on "How Structural are Structural Parameters?"
Abstract: Following the work of Christiano, Eichenbaum, and Evans (2005) and Smets and Wouters (2003), many central banks are building and estimating dynamic stochastic general equilibrium (DSGE) models and use them for monetary policy analysis. DSGE models are also widely used in the academic literature to answer a variety of policy questions. A key assumption underlying the policy analysis with DSGE models is that the parameters characterizing preferences and technologies as well as the law of motion of aggregate shocks are invariant to the to the policy changes studied with the DSGE model. The paper by Jesus Fernandez-Villaverde and Juan Rubio-Ramirez, henceforth FVRR, provides novel empirical evidence that changes in the conduct of monetary policy might coincide with changes in the “structural” parameters that determine the degree of nominal rigidity in the economy. FVRR use state-of-the-art econometric techniques developed in some of their earlier work to estimate a medium-scale DSGE model in which many of the key parameters are allowed to vary over time. The main finding of the empirical analysis is that the parameters controlling nominal rigidities drift in a substantial way and are strongly correlated with the ∗Correspondence: Department of Economics, 3718 Locust Walk, University of Pennsylvania, Philadel-
Publication Year: 2008
Publication Date: 2008-06-11
Language: en
Type: preprint
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Cited By Count: 1
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