DSGE Models with Student-t Errors

Siddhartha Chib | Srikanth Ramamurthy
Washington University in St. Louis | Loyola University Maryland


This paper deals with Dynamic Stochastic General Equilibrium (DSGE) models under a multivariate student-$t$ distribution for the structural shocks. Based on the solution algorithm of Klein (2000) and the gamma-normal representation of the t-distribution, the TaRB-MH algorithm of Chib and Ramamurthy (2010) is used to estimate the model. A technique for estimating the marginal likelihood of the DSGE student-t model is also provided. The methodologies are illustrated first with simulated data and then with the DSGE model of Ireland (2004) where the results support the t-error model in relation to the Gaussian model.

The paper is available here in pdf.

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