Bayesian Prior Elicitation In DSGE Models: Macro- Vs Micro-Priors
Source: European Central Bank
Bayesian approaches to the estimation of DSGE models are becoming increasingly popular. Prior knowledge is normally formalized either be information concerning deep parameters' values ('Microprior') or some macroeconomic indicator, e.g. moments of observable variables ('Macroprior'). In this paper the authors introduce a non parametric prior which is elicited from impulse response functions. Results show that using either a microprior or a macroprior can lead to different posterior estimates. They probe into the details of the result, showing that model misspecification is to blame for that.