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Bayesian Estimation on DSGE Model with non-Ricardian Households on Russian Data

Student: Maksim Mamonov

Supervisor: Andrey G. Shulgin

Faculty: Faculty of Economics

Educational Programme: Bachelor

Year of Graduation: 2014

<p>Our paper tries to contribute to the field of macroeconomic dynamics and to analyze the share of non-Ricardian households, importance of this parameter and its influence on key macroeconomic indicators in Russia. The research tasks are: the literature review of key papers about the theory of consumption, building of DSGE model for Russia and estimation of the share of non-Ricardian households&nbsp;&nbsp; using two methods: Bayesian approach and method of instrumental variables.</p><p>We review the theory and consumption and come to the conclusion that the theory of permanent income cannot reflect the reality with satisfactory accuracy. We underline that the key reason of it is liquidity constraints of a certain group of households. This assumption should be used not only in microeconomic research but in macroeconomic as well. That is why we consider the use of non-Ricardian households hypothesis in academic literature and compare the results of different research.</p><p>In the second part of our paper we build dynamic stochastic general e&nbsp;&nbsp; equilibrium model for representative economy of Russia. There are six agents in our model and their activity is based on 26 non-linear equations with 26 variables. For this model we found steady state and estimate it on Russian data.</p><p>As the result of the estimation we get the responses of real variables to four macroeconomic shocks. The most interesting one is government spending shock. Consumption of Ricardian households decreases after the shock, which is proved by theory. At the same time consumption of non-Ricardian households first increases and then decreases. And the whole aggregate consumption after the shock decreases as well. It contradicts several researches but proves the other.</p><p>To explain this phenomenon we estimate the share of non-Ricardian households for Russia using two approaches. First of all we build the regression using the method of instrumental variables. And secondly, we estimate it using our model. As a result we understand that the share of non-Ricardian households in equal to 12.5 per cent.&nbsp;</p>

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