Matching DSGE Models To Data With Applications To Fiscal And Robust Monetary Policy

This thesis is concerned with three questions: first, how can the effects macroeconomic policy has on the economy in general be estimated? Second, what are the effects of a pre-announced increase in government expenditures? Third, how should monetary policy be conducted, if the policymaker faces uncertainty about the economic environment. In the first chapter I suggest to estimate the effects of an exogenous disturbance on the economy by considering the parameter distributions of a Vector Autoregression (VAR) model and a Dynamic Stochastic General Equilibrium (DSGE) model jointly. This allows to resolve the major issue a researcher has to deal with when working with a VAR model and a DSGE model: the identification of the VAR model and the potential misspecification of the DSGE model. The second chapter applies the methodology presented in the preceding chapter to investigate the effects of a pre-announced change in government expenditure on private consumption and real wages. The shock is identified by exploiting its pre-announced nature, i.e. different signs of the responses in endogenous variables during the announcement and after the realization of the shock. Private consumption is found to respond negatively during the announcement period and positively after the realization. The reaction of real wages is positive on impact and positive for two quarters after the realization. In the last chapter ’Optimal Policy Under Model Uncertainty: A StructuralBayesian Estimation Approach’ I investigate jointly with Christian Stoltenberg how policy should optimally be conducted when the policymaker is faced with uncertainty about the economic environment. The standard procedure is to specify a prior over the parameter space ignoring the status of some sub-models. We propose a procedure that ensures that the specified set of sub-models is not discarded too easily. We find that optimal policy based on our procedure leads to welfare gains compared to the standard practice.