The limits of internal devaluation: Switzerland during the great depression

Swiss Journal of Economics and Statistics

Table 2 Posterior Distributions of Structural Parameters

Parameter	Prior Dist.	Median	s.d.	90\(\%\) Bands	NSE
\(\theta\)	U(5, 7)	6.42484	0.50915	[ 5.31162 , 6.94593 ]	0.00801
\(\eta\)	U(1.5, 3)	2.65994	0.34587	[ 1.86075 , 2.96740 ]	0.01032
\(\sigma\)	U(1.5, 3)	2.70467	0.29601	[ 2.02552 , 2.96884 ]	0.00650
a	U(3, 6)	3.09672	0.12358	[ 3.00868 , 3.37349 ]	0.00144
\(\omega\)	U(0.4, 1)	0.99452	0.00078	[ 0.99311 , 0.99568 ]	0.00002
\(\rho _{y^\star }\)	U(0, 1)	0.98893	0.00291	[ 0.98322 , 0.99266 ]	0.00007
\(\rho _{\delta }\)	U(0, 1)	0.99911	0.00115	[ 0.99650 , 0.99996 ]	0.00002
\(\sigma _{y^\star }\)	U(0.0001, 0.001)	0.00041	0.00420	[ 0.00020 , 0.00082 ]	0.00015
\(\sigma _{\delta }\)	U(0.0001, 0.001)	0.00010	0.00007	[ 0.00010 , 0.00010 ]	0.00000

The discount factor \(\beta\) and the preference parameter \(\gamma\) are calibrated (\(\beta\)=0.99; \(\gamma\)=0.25). \(\theta\): elasticity of substitution (domestic varieties); \(\eta\): wage elasticity of labor supply (inverse); \(\sigma\): elasticity of substitution (inverse); a: substitutability between domestic and foreign goods; \(\omega\): Calvo parameter. Parameters of exogenous AR(1)-processes: foreign demand \(\rho _{y^{\star }}\);terms of trade \(\rho _\delta\), with standard deviations \(\sigma _{y^{\star }}\) and \(\sigma _{\delta }\).
Results are based on 400,000 draws, where the first 150,000 are discarded as burn-in. The NSE is based on a 15% autocovariance taper