Posterior Predictive Analysis for Evaluating DSGE Models

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Prior and posterior predictive analysis; DSGE Model Evaluation; Monetary Policy.
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General

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