Central banks should test robustness of their main macro models – paper
Researchers warn non-linearities could distort results
Recent research published by the Bank of Canada tests its large-scale model for evidence that non-linearities might be affecting its results while urging other central banks to develop similar methods.
A challenge for such structural macroeconomic models, where they rely on perturbation methods, has been accounting for the zero lower bound (ZLB), write Vadym Lepetyuk of the Bank of Canada, and Lilia Maliar and Serguei Maliar of Stanford University in the working paper, Should Central Banks
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