Chapter 19: The science and art of DSGE modelling: II – model comparisons, model validation, policy analysis and general discussion
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The previous chapter described the construction, calibration and the Bayesian estimation of DSGE models with a particular focus on the New Keynesian model. This chapter shows how model comparisons can be made and how the model’s success in fitting data can be assessed by comparing second moments and by a comparison with a benchmark DSGE-VAR. We then demonstrate how the estimated model can be used for computing optimal monetary policy.

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