Munich Personal RePEc Archive

Posterior Predictive Analysis for Evaluating DSGE Models

Faust, Jon and Gupta, Abhishek (2010): Posterior Predictive Analysis for Evaluating DSGE Models.

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Abstract

In this paper, we develop and apply certain tools to evaluate the strengths and weaknesses of dynamic stochastic general equilibrium (DSGE) models. In particular, this paper makes three contributions: One, it argues the need for such tools to evaluate the usefulness of the these models; two, it defines these tools which take the form of prior and particularly posterior predictive analysis and provides illustrations; and three, it provides a justification for the use of these tools in the DSGE context in defense against the standard criticisms for the use of these tools.

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