This paper is an expository review of recently developed techniques that are designed to evaluate macroeconomic policy using econometric models ; The exposition focuses on dynamic stochastic models with rational expectations and with discrete time. The method of undetermined coefficients is used...

The paper reviews recent developments in macroeconomic theory and their implications for econometric modelling and for policy design. The following issues are addressed. 1) The theoretical and practical problems of modelling sequence economies. 2) Problems of evaluating the role of money given...

This paper aims to provide a stochastic, rational expectations extension of Tobin's "Money and Income; Post Hoc Ergo Proper Hoc?". It is well-known that money may Granger-cause real variables even though the joint density function of the real variables is invariant under changes in the...

This paper shows how particle filtering allows us to undertake likelihood-based inference in dynamic macroeconomic models. The models can be nonlinear and/or non-normal. We describe how to use the output from the particle filter to estimate the structural parameters of the model, those...

This paper considers a simple quantitative model of output, interest rate and inflation determination in the United States, and uses it to evaluate alternative rules by which the Fed may set interest rates. The model is derived from optimizing behavior under rational expectations, both on the...

We propose a measure of predictability based on the ratio of the expected loss of a short-run forecast to the expected loss of a long-run forecast. This predictability measure can be tailored to the forecast horizons of interest, and it allows for general loss functions, univariate or...

The possibility of exact maximum likelihood estimation of many observation-driven models remains an open question. Often only approximate maximum likelihood estimation is attempted, because the unconditional density needed for exact estimation is not known in closed form. Using simulation and...

This paper shows how probability questions can be answered within the context of macroeconometric models by using stochastic simulation. One can estimate, for example, the probability of a recession occurring within some fixed period in the future. Probability estimates are presented for two...

Why do we see nominal contracts in the presence of price level risk? To answer this question, this paper studies an overlapping generations model in which the equilibrium contract form is optimal, given the contracts elsewhere in the economy. Nominal contracts turn out to be optimal in the...

In this paper we investigate the role of credit institutions in transmitting monetary shocks to the domestic economy and to the rest of the world output. In modeling the monetary and financial sector of the economy we distinguish between monetary injections via lump-sum transfers to individuals...