Estimating DSGE Models using Multilevel Sequential Monte Carlo in Approximate Bayesian Computation

Alaminos, David ; Ramírez, Ana ; Fernández-Gámez, Manuel A; Becerra-Vicario, Rafael

Abstract

Dynamic Stochastic General Equilibrium (DSGE) models allow for probabilistic estimations with the aim of formulating macroeconomic policies and monitoring them. In this study, we propose to apply the Sequential Monte Carlo Multilevel algorithm and Approximate Bayesian Computation (MLSMC-ABC) to increase the robustness of DSGE models built for small samples and with irregular data. Our results indicate that MLSMC-ABC improves the estimation of these models in two aspects. Firstly, the accuracy levels of the existing models are increased, and secondly, the cost of the resources used is reduced due to the need for shorter execution time.

Keyword(s)

Approximate bayesian computation; Dynamic general equilibrium models; Macroeconomic forecasting; Monte Carlo algorithms

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