DynareWiki

Theoretical reminder

Consider the order

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, the VAR representation can then be written in matrix form as:
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where

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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphicx.sty
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(/usr/share/texlive/texmf-dist/tex/latex/tools/tabularx.sty)
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,
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and
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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For additional information on amsmath, use the `?' option.
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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.

Dummy observations prior for the VAR can be constructed using the VAR likelihood function for

latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphicx.sty
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphics.sty
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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artificial data simulated with the DSGE
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsxtra.sty)
(/usr/share/texlive/texmf-dist/tex/latex/amscls/amsthm.sty)
(/usr/share/texlive/texmf-dist/tex/latex/tools/dcolumn.sty
(/usr/share/texlive/texmf-dist/tex/latex/tools/array.sty))
(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphicx.sty
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphics.sty
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(/usr/share/texlive/texmf-dist/tex/latex/tools/tabularx.sty)
(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
(/usr/share/texlive/texmf-dist/tex/latex/psfrag/psfrag.sty)

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, combined with diffuse priors (see Tiao and Zellner (1962) or Zellner (1971)). The prior is then given by:
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
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(/usr/share/texlive/texmf-dist/tex/latex/tools/tabularx.sty)
(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
(/usr/share/texlive/texmf-dist/tex/latex/psfrag/psfrag.sty)

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implying that

latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphics.sty
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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follows an inverted Wishart distribution and
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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vector of model parameters
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This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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instead of the (artificial) sample moments
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. In addition, the
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-th order VAR approximation of the DSGE provides the first moment of the prior distributions through the population least-square regression:
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Conditional on the deep parameters of the DSGE

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and
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, the priors for the VAR parameters are given by:
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where

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is assumed to be non singular and
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for the priors to be proper. The a priori density of
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Transcript written on latex_7d96fdbf1c49e553cfb85651829d625865b05990_p.log.
is defined by
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Transcript written on latex_25302a77a1e7e5640cfb7ac9060d907b913d02ac_p.log.
parameters (
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! LaTeX Error: File `multirow.sty' not found.

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and
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

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or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
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, which is likely to be less than
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

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or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
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(the VAR number of parameters). If we have a one-to-one relationship (no identification issues) between
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

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or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
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l.35 ^^M
        
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and
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
entering extended mode
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

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or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
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Transcript written on latex_7d96fdbf1c49e553cfb85651829d625865b05990_p.log.
it will be a good idea to estimate
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

Type X to quit or <RETURN> to proceed,
or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
<read *> 
         
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No pages of output.
Transcript written on latex_65a5580af7a71351b2222d4707c3b544dd28a6fc_p.log.
instead of
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
entering extended mode
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, ie to estimate fewer free parameters. To do so, Del Negro and Schorfheide complete the prior by specifying a prior distribution over the structural model's deep parameters:
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. We still have to set the weight of the structural prior,
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. Del Negro and Schorfheide choose the value of
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that maximizes the marginal density. They estimate a limited number of DSGE-VAR models, say
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models, with different values of
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. For each model they also estimate the marginal density and select the model (ie the value of
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) with highest marginal density. Implicitly, they compare different models considering a (discrete) uniform prior distribution over the collection of
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models. With Dynare it is also possible to estimate
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as another parameter, instead of doing a loop over the values of this parameter. So we define a prior on
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, which is assumed to be independent from
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.

Finally, the DSGE-VAR model has the following prior structure:

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where

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is defined by [P1a,P1b] and [P2].

The posterior distribution, may be factorized in the following way:

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where

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stands for the sample. A closed form expression for the first density function on the right hand side of [Q3] is available. Conditional on
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and
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, [P1a,P1b] and [P2] define a conjugate prior for the VAR model, so its posterior density belongs to the same family: the distribution of
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l.35 ^^M
        
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l.35 ^^M
        
No pages of output.
Transcript written on latex_c4f3fecee4e0881529f034340ed356babe259a23_p.log.
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Type X to quit or <RETURN> to proceed,
or enter new name. (Default extension: sty)

Enter file name: 
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<read *> 
         
l.35 ^^M
        
No pages of output.
Transcript written on latex_d75b74a54b8295a6bc4f060eafafffcdb7c4b08d_p.log.
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latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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! LaTeX Error: File `multirow.sty' not found.

Type X to quit or <RETURN> to proceed,
or enter new name. (Default extension: sty)

Enter file name: 
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<read *> 
         
l.35 ^^M
        
No pages of output.
Transcript written on latex_6b518aa81a980ff45d5f9221fb3656662e5fce74_p.log.
and the sample is matric-variate normal, and the distribution of
latex error! exitcode was 1 (signal 0), transscript follows:

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! LaTeX Error: File `multirow.sty' not found.

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or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
<read *> 
         
l.35 ^^M
        
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Transcript written on latex_c4f3fecee4e0881529f034340ed356babe259a23_p.log.
conditional on
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

Type X to quit or <RETURN> to proceed,
or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
<read *> 
         
l.35 ^^M
        
No pages of output.
Transcript written on latex_d75b74a54b8295a6bc4f060eafafffcdb7c4b08d_p.log.
,
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
entering extended mode
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphicx.sty
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

Type X to quit or <RETURN> to proceed,
or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
<read *> 
         
l.35 ^^M
        
No pages of output.
Transcript written on latex_6b518aa81a980ff45d5f9221fb3656662e5fce74_p.log.
and the sample is inverted Wishart. More formally, we have:
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
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! LaTeX Error: File `multirow.sty' not found.

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or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
<read *> 
         
l.35 ^^M
        
No pages of output.
Transcript written on latex_30ce7ace1fe210596ce844ed2b62b8e6ad103c64_p.log.

where:

latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
entering extended mode
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LaTeX2e <2018-12-01>
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(/usr/share/texlive/texmf-dist/tex/latex/base/inputenc.sty)
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsmath.sty
For additional information on amsmath, use the `?' option.
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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(/usr/share/texlive/texmf-dist/tex/latex/amscls/amsthm.sty)
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphicx.sty
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(/usr/share/texlive/texmf-dist/tex/latex/graphics/graphics.sty
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(/usr/share/texlive/texmf-dist/tex/latex/graphics-cfg/graphics.cfg)
(/usr/share/texlive/texmf-dist/tex/latex/graphics-def/dvips.def)))
(/usr/share/texlive/texmf-dist/tex/latex/tools/tabularx.sty)
(/usr/share/texlive/texmf-dist/tex/latex/tools/hhline.sty)
(/usr/share/texlive/texmf-dist/tex/latex/psfrag/psfrag.sty)

! LaTeX Error: File `multirow.sty' not found.

Type X to quit or <RETURN> to proceed,
or enter new name. (Default extension: sty)

Enter file name: 
! Emergency stop.
<read *> 
         
l.35 ^^M
        
No pages of output.
Transcript written on latex_6b5382e5a043b3a5b91531da7705b18bdd3fc401_p.log.

with:

latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
entering extended mode
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For additional information on amsmath, use the `?' option.
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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The posterior mean of

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is a convex combination of
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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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, the prior mean, and of the OLS estimate of
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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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. When
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This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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goes to infinity the posterior mean shrinks towards the prior mean, ie the projection of the DSGE model onto the VAR(
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This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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For additional information on amsmath, use the `?' option.
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
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). We do not have a closed form expression for the joint posterior density of
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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For additional information on amsmath, use the `?' option.
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsbsy.sty)
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and
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This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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LaTeX2e <2018-12-01>
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For additional information on amsmath, use the `?' option.
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
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(the second term on the right hand side of [Q3]). So the posterior distribution of
latex error! exitcode was 1 (signal 0), transscript follows:

This is pdfTeX, Version 3.14159265-2.6-1.40.19 (TeX Live 2019/dev/Debian) (preloaded format=latex)
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(/usr/share/texlive/texmf-dist/tex/latex/base/inputenc.sty)
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsmath.sty
For additional information on amsmath, use the `?' option.
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amstext.sty
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsgen.sty))
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsbsy.sty)
(/usr/share/texlive/texmf-dist/tex/latex/amsmath/amsopn.sty))
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(/usr/share/texlive/texmf-dist/tex/latex/amsfonts/amsfonts.sty))
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is recovered from an MCMC algorithm, as described in Del Negro and Schorfheide, except that we do estimate
latex error! exitcode was 1 (signal 0), transscript follows:

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as the deep parameters
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.

Estimation of a DSGE-VAR model with Dynare

Up to version 4.1.x

The estimation of a DSGE-VAR model instead of a DSGE model is triggered by using the keyword dsge_prior_weight in the list of declared parameters. This parameter name is the Dynare word for

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. If dsge_prior_weight is a parameter, Dynare understands that the user wants to estimate a DSGE-VAR model using the DSGE model declared in the same file as a prior for a VAR model. The number of lags is four by default and can be changed by adding, for instance, the following line of code:
options_.varlag = 12;

before the estimation command. The weight of the DSGE prior can be :

  1. Calibrated to a positive real number (greater than

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    ) or to Inf (
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    case).
  2. Estimated jointly with the deep parameters. In this case, a prior density has to be defined in the estimated_params block with the usual syntax. An example where the estimation of

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    is implemented is given in Adjemian Darracq-Pariès and Moyen (2008).

Version 4.2.x and following

The estimation of a DSGE-VAR model instead of a DSGE model is triggered by using the keyword dsge_var in the estimation command. If the weight of the DSGE prior is calibrated (as in Del Negro and Schorfheide (2004)) the calibrated value for

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must be supplied the the estimation block as follows:
estimation(..., dsge_var = 1.4, ...);

The DSGE prior weight has to be a real positive number or plus infinity. If the weight of the DSGE prior is estimated (as in Adjemian, Darracq-Pariès, and Moyen (2008)), the prior of

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must be defined in the estimated_params block, as follows:
estimated_params;
 ...
 dsge_prior_weight, uniform_pdf, , , 0, 2;
 ...
end;

estimation(..., dsge_var, ...);

The number of lags of the VAR model is four by default and can be changed by using the option dsge_varlag in the estimation command, for instance:

estimation(..., dsge_var, dsge_varlag=12, ...);

Example

Up to version 4.1.x

First run the file simul_hybrid.mod to create a data set from a new keynesian model with an hybrid Phillips curve. Second run the file bvar_forward.mod to estimate the DSGE-VAR model (where the DSGE prior is a new keynesian model with an hybrid Phillips curve). The second file is documented.

Version 4.2.x and following

Examples are in the tests directory of the (git) master repository.

References

Adjemian, S., Darracq-Pariès, M. and S. Moyen (2008). Towards a monetary policy evaluation framework. ECB Working paper 942

Del Negro, M., and F. Schorfheide (2004). Priors from General Equilibrium Models for VARs, in International Economic Review, 45(2), 643–673.

Del Negro, M., F. Schorfheide, F. Smets, and R. Wouters (2007). On the Fit of New Keynesian Models, in Journal of Business and Economic Statistics, 25(2), 123-162.

Tiao, G. C., and A. Zellner (1964). Bayes Theorem and the Use of Prior Knowledge in Regression Analysis, Biometrika, 51(162), 219–230.

Zellner, A. (1971). An Introduction to Bayesian Inference in Econometrics. John Wiley & Sons.

DynareWiki: DsgeVar (last edited 2016-03-23 14:35:36 by StéphaneAdjemian)