SEQUENTIAL MONTE CARLO SAMPLING FOR DSGE MODELS

We develop a sequential Monte Carlo (SMC) algorithm for estimating Bayesian dynamic stochastic general equilibrium (DSGE) models; wherein a particle approximation to the posterior is built iteratively through tempering the likelihood. Using two empirical illustrations consisting of the Smets and Wou...

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Bibliographic Details
Published in:Journal of applied econometrics (Chichester, England) Vol. 29; no. 7; pp. 1073 - 1098
Main Authors: Herbst, Edward, Schorfheide, Frank
Format: Journal Article
Language:English
Published: Chichester Blackwell Publishing Ltd 01.11.2014
Wiley (Variant)
Wiley-Blackwell
Wiley Periodicals Inc
Subjects:
Algorithms
Bayesian analysis
Bayesian method
Dynamisches Gleichgewicht
Economic models
Economic shock
Function words
General economic equilibrium
Inference
Markov analysis
Markovian processes
Monte Carlo simulation
Random walk theory
Sampling
Schätztheorie
Stichprobenerhebung
Stochastic models
Stochastic processes
Studies
Theorie
Working hours
ISSN:0883-7252, 1099-1255
Online Access:Get full text
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Summary:We develop a sequential Monte Carlo (SMC) algorithm for estimating Bayesian dynamic stochastic general equilibrium (DSGE) models; wherein a particle approximation to the posterior is built iteratively through tempering the likelihood. Using two empirical illustrations consisting of the Smets and Wouters model and a larger news shock model we show that the SMC algorithm is better suited for multimodal and irregular posterior distributions than the widely used random walk Metropolis–Hastings algorithm. We find that a more diffuse prior for the Smets and Wouters model improves its marginal data density and that a slight modification of the prior for the news shock model leads to drastic changes in the posterior inference about the importance of news shocks for fluctuations in hours worked. Unlike standard Markov chain Monte Carlo (MCMC) techniques; the SMC algorithm is well suited for parallel computing.
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ISSN:0883-7252
1099-1255
DOI:10.1002/jae.2397