The deviance information criterion (DIC) has been widely used for Bayesian model comparison. However, recent studies have cautioned against the use of the DIC for comparing latent variable models. In particular, the DIC calculated using the conditional likelihood (obtained by conditioning on the...

The empirical support for a DSGE type of real business cycle model with two technology shocks is evaluated using a Bayesian model averaging procedure that makes use of a finite mixture of many models within the class of vector autoregressive (VAR) processes. The linear VAR model is extended to...

The empirical support for a DSGE type of real business cycle model with two technology shocks is evaluated using a Bayesian model averaging procedure that makes use of a finite mixture of many models within the class of vector autoregressive (VAR) processes. The linear VAR model is extended to...

The modified harmonic mean is widely used for estimating the marginal likelihood. We investigate the empirical performance of two versions of this estimator: one based on the observed-data likelihood and the other on the complete-data likelihood. Through an empirical example using US and UK...

We prove that the Generalized Taylor Principle, under which the nominal interest rate reacts more than one-for-one to inflation in the long run, is a necessary and (under some extra mild restrictions on parameters) sufficient condition for determinacy in a sticky price model with positive...

A puzzle from the Great Recession is an apparent mismatch between a fall in the persistence of European inflation rates, and the increased variability of expert forecasts of inflation. We explain this puzzle and show how country specific beliefs about inflation are still quite close to the...

Some authors have argued that multiplicative uncertainty may be beneficial to society as the cautionary move reduces the inflation bias. Contrary to this claim, I show that, when there are non-atomistic wage setters, an increase in multiplicative uncertainty rises the real wage premium and...

This paper examines the sources of Australia’s business cycle fluctuations focusing on the role of international shocks and short run stabilization policy. A VAR model identified using robust sign restrictions derived from an estimated structural model is used to aid the investigation. The...

We estimate the underlying macroeconomic policy objectives of three of the earliest explicit inflation targeters - Australia, Canada and New Zealand - within the context of a small open economy DSGE model. We assume central banks set policy optimally, such that we can reverse engineer policy...

We incorporate inferential expectations into the Barro-Gordon model (1983a) of time inconsistency and consider reputational equilibria. The range of sustainable equilibria shrinks as the private sector becomes more belief-conservative.