Euro area in‡ation persistence in an estimated nonlinear DSGE model
We estimate the approximate nonlinear solution of a small DSGE model on euro area data, using the conditional particle …lter to compute the model likelihood. Our results are consistent with previous …ndings, based on simulated data, suggesting that this approach delivers sharper inference compared to the estimation of the linearised model. We also show that the nonlinear model can account for richer economic dynamics: the impulse responses to structural shocks vary depending on initial conditions selected within our estimation sample.
DSGE models, in‡ation persistence, second order approximations, sequential Monte Carlo, Bayesian estimation.
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