Bayesian estimation of a dynamic stochastic general equilibrium model with asset prices
2016; Wiley; Volume: 7; Issue: 1 Linguagem: Inglês
10.3982/qe396
ISSN1759-7331
Autores Tópico(s)Stochastic processes and financial applications
ResumoQuantitative EconomicsVolume 7, Issue 1 p. 257-287 Original ArticlesOpen Access Bayesian estimation of a dynamic stochastic general equilibrium model with asset prices Martin Kliem, Martin Kliem martin.kliem@bundesbank.de Economic Research Center, Deutsche BundesbankSearch for more papers by this authorHarald Uhlig, Harald Uhlig huhlig@uchicago.edu Department of Economics, University of Chicago We would like to thank Fabio Canova, Bong Geun Choi, Lars Hansen, Ivan Jacaard, John Geweke, Holger Müller, B. Ravikumar, Tom Sargent, Frank Schorfheide, Andrea Tamoni, Mu-Chun Wang, and Tao Zha as well as three anonymous referees for their helpful comments. Moreover, we have benefited from presentations of earlier drafts at a variety of conferences and talks. This research was previously supported by the Deutsche Forschungsgemeinschaft through the SFB 649 “Economic Risk” and is currently supported by NSF Grant SES-1227280. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Search for more papers by this author Martin Kliem, Martin Kliem martin.kliem@bundesbank.de Economic Research Center, Deutsche BundesbankSearch for more papers by this authorHarald Uhlig, Harald Uhlig huhlig@uchicago.edu Department of Economics, University of Chicago We would like to thank Fabio Canova, Bong Geun Choi, Lars Hansen, Ivan Jacaard, John Geweke, Holger Müller, B. Ravikumar, Tom Sargent, Frank Schorfheide, Andrea Tamoni, Mu-Chun Wang, and Tao Zha as well as three anonymous referees for their helpful comments. Moreover, we have benefited from presentations of earlier drafts at a variety of conferences and talks. This research was previously supported by the Deutsche Forschungsgemeinschaft through the SFB 649 “Economic Risk” and is currently supported by NSF Grant SES-1227280. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Search for more papers by this author First published: 04 April 2016 https://doi.org/10.3982/QE396Citations: 4 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Abstract This paper presents a novel Bayesian method for estimating dynamic stochastic general equilibrium (DSGE) models subject to a constrained posterior distribution for the implied Sharpe ratio. We apply our methodology to a DSGE model with habit formation in consumption and leisure, and show that the constrained estimation produces both reasonable asset-pricing and business-cycle implications. Next, we estimate the Smets–Wouters model subject to the same Sharpe ratio constraint. The results move the model closer to reproducing observed risk premia, but at increasing cost to its macroeconomic performance. References 1 Abel, A. B. (1990), “Asset prices und habit formation and catching up with the Joneses.” American Economic Review, 80, 38– 42. 1 Backus, D. K., A. W. Gregory, and S. E. Zin (1989), “Risk premiums in the term structure: Evidence from artificial economies.” Journal of Monetary Economics, 24, 371– 399. 1 Bansal, R. and A. Yaron (2004), “Risks for the long run: A potential resolution of asset pricing puzzles.” Journal of Finance, 59, 1481– 1509. 1 Barro, R. J. 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