Table 3.

Parameters – Calibration. Notes: Parameters for the baseline calibration, see the main text for details.

param.	value	source/target	param.	value	source/target
Preferences			Monetary policy
$\beta$	0.994	Basu and Bundick (2017) (BB).	${\rho }_{\Pi }$	1.5	conventional value, as in BB.
$\eta$	0.326	Frisch elasticity of 2, BB.	${\rho }_y$	0.5/4	conventional value.
$\psi$	0.95	BB.	$\overline{\Pi }$	1.0057	mean inflation rate 2% p.a.
$\sigma$	80	BB.	Shocks
Production			${\rho }_a$	0.935	BB.
$\alpha$	1/3	BB.	${\sigma }^a$	0.0026	BB.
$K$	10	capital stock 2.5 times annual GDP.	${\rho }_{{\sigma }^a}$	0.742	BB.
${\theta }_{\mu }$	6	BB.	${\sigma }^{{\sigma }^a}$	0.0025	BB.
$\Phi$	0.584	dividend/GDP ratio of 1%, BB.	$\overline{Z}$	2.206	Targets $\overline{Y}=1.$
$\nu$	0.85	BB.	${\rho }_A$	0.987	BB.
${\varphi }_p$	400	slope of Phillips curve, see text.	${\sigma }^A$	0.0013	BB.
			${\rho }_{X,1}$	1.5	judgmental, see text.
			${\rho }_{X,2}$	-0.6	judgmental, see text.
			${\sigma }^X$	0.001	judgmental, see text.