While DSGE models have been widely used by central banks for policy analysis, they seem to have been ineffective in calibrating the models for anticipating financial crises. To bring DSGE models closer to real situations, some of researchers have revised the traditional DSGE models. One of the modified DSGE models is the adaptive belief system model. In this framework, changes in sentiment can ...

Epstein-Zin preferences (or “EZ” preferences) have become increasingly popular in recent asset pricing work. Dynamic stochastic general equilibrium (DSGE) models which feature Epstein-Zin preferences are typically considered technically challenging, often thought to require sophisticated numerical solution methods to solve them and considerable additional thought to understand them. The purpose...

The primary objective of this paper is to revisit DSGE models with a view to appraise their statistical adequacy and propose ways to ameliorate their empirical pertinence. This paper brings out several weaknesses of the traditional DSGE modeling, including statistical misspecification, non-identification of deep parameters, substantive inadequacy, weak forecasting performance and potentially mi...

In this paper we review the methodology of forecasting with log-linearised DSGE models using Bayesian methods. We focus on the estimation of their predictive distributions, with special attention being paid to the mean and the covariance matrix of h-steps ahead forecasts. In the empirical analysis, we examine the forecasting performance of the New Area-Wide Model (NAWM) that has been designed f...

In this paper, we investigate the consequences of breaks in mean for the estimates of model parameters and the resulting inferences about the structure of the economy and policy implications. We explore the behavior of DSGE models that undergo occasional, but permanent shocks to the parameters that determine their steady state. We present a method for approximating the state space representatio...

So far the literature on DSGE models with energy price shocks uses energy on the production side only. In these models, energy shocks are responsible for only a negligible share of output fluctuations. We study the robustness of this finding. The aim of our paper is to model the response of household behavior to energy shocks in more detail as in the existing literature. Specifically, in additi...

This paper proposes a functional specification approach for dynamic stochastic general equilibrium (DSGE) models that explores the properties of the solution method used to approximate policy functions. In particular, the solution-driven specification takes the properties of the solution method directly into account when designing the structural model in order to deliver enhanced flexibility an...