Assessing DSGE Model Nonlinearities
S. Boragan Aruoba, Luigi Bocola and Frank Schorfheide
,
Working Paper
February
2014
Abstract
We develop a new class of time series models to identify nonlinearities in the data and to evaluate DSGE models. U.S. output growth and the federal funds rate display nonlinear conditional mean dynamics, while inflation and nominal wage growth feature conditional heteroskedasticity. We estimate a DSGE model with asymmetric wage and price adjustment costs and use predictive checks to assess its ability to account for nonlinearities.