Bayesian Estimation of a DSGE Model for the Portuguese Economy

Abstract

In this paper, a New-Keynesian DSGE model for a small open economy integrated in a monetary union is developed and estimated for the Portuguese economy, using a Bayesian approach. Estimates for some key structural parameters are obtained and a set of exercises exploring the model's statistical and economic properties are performed. A survey on the main events and literature associated with DSGE models that motivated this study is also provided, as well as a comprehensive discussion of the Bayesian estimation and model validation techniques applied. The model features five types of agents namely households, firms, aggregators, the rest of the world and the government, and includes a number of shocks and frictions, which enable a closer matching of the short-run properties of the data and a more realistic short-term adjustment to shocks. It is assumed from the outset that monetary policy is defined by the union's central bank and that the domestic economy's size is negligible, relative to the union's one, and therefore its specific economic fluctuations have no influence on the union's macroeconomic aggregates and monetary policy. An endogenous risk-premium is considered, allowing for deviations of the domestic economy's interest rate from the union's one. Furthermore it is assumed that all trade and financial flows are performed with countries belonging to the union, which implies that the nominal exchange rate is irrevocably set to unity.

Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model

“…Considering the habit persistence of Ricardian households, the different specifications do not seem to influence the estimated values of . Although these values are lower than the one reported by Almeida (2009) for Portugal, they match the findings of Smets and Wouters (2003) well. The investment adjustment cost parameter is estimated to be around 4.5 for specifications a and b.3 and around 3.3 for calibrated to 0 and 0.25.…”

“…11 As in Almeida (2009), g y is set to 0.14 and steady-state investment-to-output ratio, i y , is found by using the labor income share in total output, , the rate of capital depreciation and the steady-state real interest rate:…”

A Multivariate Filter to Estimate Potential Output and NAIRU for the Maltese Economy

“…5; those obtained from the HP-filter using two different smoothing parameters. The first is 1600, proposed by Kydland and Prescott (1990) and the other is 7680, proposed by Almeida (2009) for Portugal, which is also a small and open economy in a monetary union. To avoid the end-of-sample problem, the GDP and unemployment series were extended until 2018 using the European Commission"s Autumn 2015 economic forecasts.…”

A Model for Monetary Policy Analysis for Sub-Saharan Africa

“…We estimate the parameters of the monetary policy rule because we are interested in historical policy in Ghana. The remaining parameters are fixed following the recent working paper by Almeida (2009). We use this as a benchmark because Almeida (2009) estimates a model that is similar to ours, but for the Portuguese economy.…”