RDP 2011-02: Long-term Interest Rates, Risk Premia and Unconventional Monetary Policy Appendix B: Calibration

Table B1: Calibration of Model Parameters
Parameter Description Value
β Households' discount factor 0.991
δ Positive parameter relevant for households' money demand 4.36
σ Coefficient for relative risk aversion 2
h Degree of habit formation 0.9
δ0 Parameter governing the cost of portfolio rebalancing 1.82
λ Proportion of unrestricted agents 0.29
τ Intensity of the endogenous friction 0.54
χ Supply-side parameter 1.36
Inline Equation Slope of Phillips curve 0.014
PR Coefficient on Inline Equation in policy rule 0.75
ρy Coefficient on yt in policy rule 0.09
ρπ Coefficient on πt in policy rule 0.49
ρµ Coefficient on µt in policy rule 0.35
ρa Persistence of preference shock 0.89
ρe Persistence of money demand shock 0.99
ρz Persistence of technology shock 0.97
ρζ Persistence of exogenous risk premia shock 0.80
σa Standard error of the preference shock innovation 0.039
σe Standard error of money demand shock innovation 0.054
σz Standard error of technology shock innovation 0.011
σr Standard error of policy shock innovation 0.009
σζ Standard error of exogenous risk premia shock innovation 0.004

Source: Andres et al (2004)