Marto, Ricardo (2013): Assessing the Impacts of NonRicardian Households in an Estimated New Keynesian DSGE Model.

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Abstract
Using Bayesian maximum likelihood and data for Portugal, I estimate a New Keynesian DSGE model allowing for the presence of nonRicardian households and test the stability of the model's prediction when the fraction of liquidityconstrained households changes. In particular, I assess the impacts on: (i) the model parameters posterior distributions; (ii) the impulse responses to six types of structural shocks; and (iii) the sources of fluctuations in output, inflation and the nominal interest rate. The first interesting result is the estimated share of nonRicardian households in the Portuguese economy, which is found to be relatively high (58%). Even under a simplistic model economy, this result seems plausible and in line with Campbell and Mankiw (1989) for the US (50% of households estimated to be liquidityconstrained) but slightly higher than for other European countries and the euro area (between 25% and 37%). I also show that differenteven if relatively closeshares of nonRicardian households provide very distinct estimates of several parameters, and uneven results and interpretations. Impulse responses to consumption preference and productivity shocks are more amplified for lower shares of liquidityconstrained households; whereas for greater proportions, the model predicts more noticeable responses to price markup and government spending shocks. Fluctuations in output growth are mainly driven by productivity shocks for a lower share of ruleofthumb consumers and by price markup shocks in the opposite scenario. Furthermore, the presence of a high proportion of nonRicardian households and a high degree of price stickiness makes the Taylortype interest rate rule solution locally indeterminate as in Galí et al. (2007).
Item Type:  MPRA Paper 

Original Title:  Assessing the Impacts of NonRicardian Households in an Estimated New Keynesian DSGE Model 
Language:  English 
Keywords:  DSGE, New Keynesian model, nonRicardian households, Bayesian inference, Portugal. 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C11  Bayesian Analysis: General E  Macroeconomics and Monetary Economics > E1  General Aggregative Models > E12  Keynes ; Keynesian ; PostKeynesian E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E52  Monetary Policy E  Macroeconomics and Monetary Economics > E6  Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62  Fiscal Policy 
Item ID:  55647 
Depositing User:  Mr. Ricardo Marto 
Date Deposited:  05. May 2014 14:07 
Last Modified:  05. May 2014 14:48 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/55647 