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CONSISTENT VARIANCE OF THE LAPLACE‐TYPE ESTIMATORS: APPLICATION TO DSGE MODELS
Author(s) -
Kormilitsina Anna,
Nekipelov Denis
Publication year - 2016
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12169
Subject(s) - dynamic stochastic general equilibrium , estimator , variance (accounting) , mathematics , confidence interval , laplace transform , scaling , econometrics , type (biology) , statistics , economics , mathematical analysis , monetary policy , accounting , monetary economics , ecology , geometry , biology
The Laplace‐type estimator has become popular in applied macroeconomics, in particular for estimation of dynamic stochastic general equilibrium (DSGE) models. It is often obtained as the mean and variance of a parameter's quasi‐posterior distribution, which is defined using a classical estimation objective. We demonstrate that the objective must be properly scaled; otherwise, arbitrarily small confidence intervals can be obtained if calculated directly from the quasi‐posterior distribution. We estimate a standard DSGE model and find that scaling up the objective may be useful in estimation with problematic parameter identification. It this case, however, it is important to adjust the quasi‐posterior variance to obtain valid confidence intervals.