In this paper we review the methodology of forecasting with log-linearised DSGE models using Bayesian methods. We focus on the estimation of their predictive distributions, with special attention being paid to the mean and the covariance matrix of h-steps ahead forecasts. In the empirical...

This paper investigates how the ordering of variables affects properties of the time-varying covariance matrix in the Cholesky multivariate stochastic volatility model. It establishes that systematically different dynamic restrictions are imposed when the ratio of volatilities is time-varying....

As GDP is highly correlated with both entering and exiting firms, we develop a totally microfounded DSGE model with endogenous firms entry as well as exit decisions. We show that the simplifying assumption of a constant firms' death rate made by the recent literature on DSGE modelling can lead...

Expectations matter for economic activity. To the extent that they are fundamentally unwarranted, they represent "undue optimism or pessimism" (Pigou, 1927). In this paper, we identify empirically the effect of undue optimism/pessism ("optimism shocks") on economic activity. In a first step, we...

We test the menu cost model of Ball and Mankiw (1994, 1995) on data from the inflation and deflation periods in Japan and Hong Kong. We calculate the moments of the distribution of price changes using a random split procedure to overcome the bias noted by Cecchetti and Bryan (1999). The key...

We estimate the effects of monetary policy on price-setting behavior in administrative micro data underlying the German producer price index. After expansionary monetary policy, the increase in the frequency of price change is economically small, the average absolute size across all price...

We show that an otherwise standard one-sector real business cycle model with variable capital utilization and mild increasing returns-to-scale is able to generate qualitatively as well as quantitatively realistic aggregate fluctuations driven by news shocks to two formulations of future...