Assessing DSGE model nonlinearities

S. Borağan Aruoba*, Luigi Bocola, Frank Schorfheide

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

14 Scopus citations


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 these nonlinearities. While it is able to match the nonlinear inflation and wage dynamics, thanks to the estimated downward wage and price rigidities, these do not spill over to output growth or the interest rate.

Original languageEnglish (US)
Pages (from-to)34-54
Number of pages21
JournalJournal of Economic Dynamics and Control
StatePublished - Oct 2017


  • Asymmetric adjustment costs
  • Bayesian analysis
  • Econometric model evaluation
  • Perturbation solution
  • Predictive checks
  • Quadratic autoregressions

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics


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