Solving and analyzing DSGE models in the frequency domain

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Researcher: Alexander Meyer-Gohde
Date: 1.8.2024
Abstract:

The author provides a solution method in the frequency domain for multivariate linear rational expectations models. The method works with the generalized Schur decomposition, providing a numerical implementation of the underlying analytic function solution methods suitable for standard DSGE estimation and analysis procedures. This approach generalizes the time-domain restriction of autoregressive-moving average exogenous driving forces to arbitrary covariance stationary processes. Applied to the standard New Keynesian model, the author finds that a Bayesian analysis favors a single parameter log harmonic function of the lag operator over the usual AR(1) assumption as it generates humped shaped autocorrelation patterns more consistent with the data.

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