One popular innovation in macro and financial is the use of Epstein-Zin-Weil preferences. Roughly speaking these recursive preferences separate the risk aversion parameter from the elasticity of intertemporal substitution parameter, and they also allow people to care about the timing of when uncertainty is resolved.
However, working with these preferences in a general model is pretty tough.
In a new NBER working paper (ungated version here), Binsbergen, Fernandez-Villaverde, Koijen, & Rubio-Ramirez, show how to use second or third order perterbation methods to solve a fairly general DSGE model with EZW preferences and how to use the particle filter to build a likelihood function for directly estimating (instead of calibrating) the structural parameters of interest (or at least a subset of them).
This is not a simple paper, but it is an excellent one.
2 comments:
Thanks for the heads up on this paper.
By the way I do enjoy your posts on macro, especially the more critical ones.
KBG- you're a tease. What's the conclusion?
--Noel
Post a Comment