Bayesian Model Revolutionizes Understanding of Global Macroeconomics
The article explores a new way to understand how economies interact using a two-country model. By using Bayesian techniques, the researchers were able to overcome challenges in estimating the model. They applied this method to data from the U.S. and the Euro Area, comparing closed and open economy specifications. The study found that the model could explain exchange rate movements and the effects of monetary policy shocks.