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Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model

Swiss Journal of Economics and Statistics volume 150, pages 353–398 (2014)Cite this article

Summary

A New Keynesian DSGE model with non-Ricardian households is estimated for the Portuguese economy and the stability of the model’s prediction (posterior distributions, impulse responses, and sources of fluctuations in endogenous variables) tested under different assumptions on non-Ricardian households. Their share is estimated to be relatively high (58 %). Furthermore, estimates of several parameters as well as the magnitude and persistence of shocks are particularly sensitive to the share of non-Ricardian households. Impulse responses to consumption preference and productivity shocks are amplified for lower shares; for greater proportions, the model predicts more noticeable responses to price markup and government spending shocks. Fluctuations in output growth are mainly driven by productivity shocks for a lower share and by price markup shocks in the opposite scenario. A high proportion of these households together with a high degree of price stickiness lead the Taylor-type interest rate rule solution to be locally indeterminate.

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Authors and Affiliations

  1. Inter-American Development Bank (IDB), USA

    Ricardo Marto

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  1. Ricardo Marto
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Correspondence to Ricardo Marto.

Additional information

I am grateful to Toru Kitagawa, Vincent Sterk, Riccardo Constantini, and Hector Conroy for their valuable inputs. Useful insights from the lectures of Paul Levine and Bo Yang given at the NIPE’s 9th summer school are duly acknowledged. The views expressed in this paper are mine and should not be interpreted as reflecting the views of the IDB. Any errors or shortcomings are my responsibility.

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Marto, R. Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model. Swiss J Economics Statistics 150, 353–398 (2014). https://doi.org/10.1007/BF03399411

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  • DOI: https://doi.org/10.1007/BF03399411

JEL-Classification

  • C11
  • E12
  • E37
  • E52
  • E62

Keywords

  • DSGE
  • New Keynesian model
  • non-Ricardian households
  • Bayesian inference
  • Portugal