Assessing the fit of small open economy DSGEs
We describe a simple extension of the Monacelli (2005) small open economy model that incorporates a non-tradable good, habit persistence and price indexation. The empirical fit of eight different specifications of this model is then tested in a Bayesian framework using data for three small open economies; Australia, Canada, and New Zealand. The results show that the model with a non-tradable good fits the data better than the one-good model across all specifications considered. In contrast to Rabanal and Rubio-Ramarez (2005), we find that adding price indexation to either the one- or two-good model deteriorates overall empirical fit.
Year of publication: |
2010
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Authors: | Matheson, Troy |
Published in: |
Journal of Macroeconomics. - Elsevier, ISSN 0164-0704. - Vol. 32.2010, 3, p. 906-920
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Publisher: |
Elsevier |
Subject: | DSGE Small open economy |
Saved in:
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