Model Selection for Monetary Policy Analysis: How Important is Empirical Validity?

• Autores: Q. Farooq Akram, Ragnar Nymoen
• Localización: Oxford bulletin of economics and statistics, ISSN 0305-9049, Vol. 71, Nº. 1, 2009, págs. 35-68
• Idioma: inglés
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• Resumen

  • We investigate the economic significance of trading off empirical validity of models against other desirable model properties. Our investigation is based on three alternative econometric systems of the supply side, in a model that can be used to discuss optimal monetary policy in Norway. Our results caution against compromising empirical validity when selecting a model for policy analysis. We also find large costs from basing policies on the robust model, or on a suite of models, even when it contains the valid model. This confirms an important role for econometric modelling and evaluation in model choice for policy analysis.