(with Pablo Cuba-Borda and Frank Schorfheide)

Draft Coming Soon.

(with Pablo Cuba-Borda and Frank Schorfheide)

Draft Coming Soon.

(with Pablo Cuba-Borda, Kenji Higa-Flores, Frank Schorfheide, Sergio Villalvazo)

Published in *Review of Economic Dynamics, *July *2021, 41, 96-120.*

We develop an algorithm to construct approximate decision rules that are piecewise-

linear and continuous for DSGE models with an occasionally binding constraint. The functional form of the decision rules allows us to derive a conditionally optimal particle filter (COPF) for the evaluation of the likelihood function that exploits the structure of the solution. We document the accuracy of the likelihood approximation and embed it into a particle Markov chain Monte Carlo algorithm to conduct Bayesian estimation. Compared with a standard bootstrap particle filter, the COPF significantly reduces the persistence of the Markov chain, improves the accuracy of Monte Carlo approximations of posterior moments, and drastically speeds up computations. We use the techniques to estimate a small-scale DSGE model to assess the effects of the government spending portion of the American Recovery and Reinvestment Act in 2009 when interest rates reached the zero lower bound.

First Draft : January 2019

**Paper**

Most Recent Working Paper [January 2021]

NBER Working Paper 27991 [October 2020]

Published Version (requires subscription)

**Additional Materials**

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(with Luigi Bocola and Frank Schorfheide)

Published in *Journal of Economic Dynamics and Control,* 2017*, *83, 34-54.

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 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.

First draft : October 2011

**Paper**

Most Recent Working Paper [July 2017]

Published Version (requires subscription)

Federal Reserve Bank of Philadelphia Working Paper [November 2013]

NBER Working Paper 19693 [December 2013]

(with Frank Schorfheide)

We have no current plans of revising or publishing this paper. It is meant to be an extension of Aruoba and Schorfheide (2011).

In this note we extend the search-based monetary DSGE model studied in Aruoba and Schorfheide (2010) and introduce liquid capital claims. More specifically, buyers in the decentralized market can use a fraction of their capital stock holdings in addition to money to acquire goods from sellers. We show that if liquid capital is a small fraction of the overall capital then money and capital claims can co-exist as a medium of exchange in the decentralized market. Our analysis extends earlier work by Lagos and Rochetau to an environment in which capital is used as a factor of production in the decentralized market. We then estimate our model using Bayesian methods. We find that the estimated fraction of capital that is liquid is close to zero, which means that the data favor the specification without liquid capital, studied in Aruoba and Schorfheide (2010).

First draft : January 2010

**Paper**

Working Paper [January 2010]

(with Frank Schorfheide)

Also circulated as “Insights from an Estimated Search Model of Money with Nominal Rigidities”.

Published in *American Economic **Journal: Macroeconomics*, January 2011, 3, 60-90.

We develop a two-sector monetary model with a centralized and decentralized market. Activities in the centralized market resemble those in a standard New Keynesian economy with price rigidities. In the decentralized market agents engage in bilateral exchanges for which money is essential. This paper is the first to formally estimate such a model, evaluate its fit based on postwar U.S. data, and assess its money demand properties. Steady state welfare calculations reveal that the distortions created by the monetary friction may be of similar magnitude as the distortions created by the New Keynesian friction.

First draft : October 2007

**Paper**

NBER Working Paper 14870 [April 2009]

Most Recent Working Paper (may not be identical to the published version)

Published Version (requires subscription)

**Additional Materials**