An often heard view is that exchange rate variability will decrease for a country that joins the EMU. This is not necessarily true. Both real and nominal exchange rate variability increase under certain circumstances when asymmetric demand shocks occur inside or outside the union. These results...

In this article, we propose the Bayesian estimation of the parsimonious but effective GARCH(1,1) model with Normal innovations. We sample the parameters joint posterior distribution using the approach suggested by Nakatsuma (1998). As a first step, we fit the model to foreign exchange...

Employing an endogenous growth model with human capital, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate fluctuations in output, consumption, investment and hours. Given the importance of accounting for both the...

Employing an endogenous growth model with human capital, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate fluctuations in output, consumption, investment and hours. Given the importance of accounting for both the...

The assumption of rational expectations is potentially a serious source of misspecification in DSGE models. Many recent theories of expectations formation have relaxed rational expectations and improved the predictive properties of benchmark macroeconomic models. Problematically, the space of...

We estimate a small DSGE model by full information Bayesian techniques on the basis of Israeli data from 1995 to 2006. The model was first developed and estimated by means of classical GMM in Argov and Elkayam (2010), and since then it has been used at the Bank of Israel for monetary policy...

In this paper we apply a sensitivity analysis regarding two types of prior information considered within the Bayesian estimation of a standard hybrid New-Keynesian model. In particular, we shed a light on the impact of micro- and macropriors on the estimation outcome. First, we investigate the...

This paper contributes to the on-going empirical debate regarding the role of the RBC model and in particular of technology shocks in explaining aggregate fluctuations. To this end we estimate the model's posterior density using Markov-Chain Monte-Carlo (MCMC) methods. Within this framework we...

In this paper we apply a sensitivity analysis regarding two types of prior information considered within the Bayesian estimation of a standard hybrid New-Keynesian model. In particular, we shed a light on the impact of micro- and macropriors on the estimation outcome. First, we investigate the...

It has been argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent Great Recession, and that models in which inflation depends on economic slack cannot explain the recent muted behavior of inflation, given the...