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Invertibility and VAR Representations of Time-Varying Dynamic Stochastic General Equilibrium Models

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  • Maddalena Cavicchioli

    (University of Modena and Reggio E.)

Abstract

I study the invertibility problem for time-varying dynamic stochastic general equilibrium (DSGE) models. The question of interest is whether the shocks of a time-varying DSGE model can be recovered from an infinite time-varying VAR on the observable variables. Then I focus on DSGE models whose coefficients are driven by a Markov chain, and propose tractable methods to check their invertibility. Finally, I illustrate the validity of such methods via computations and examples. My results relate with the works of Amisano and Tristani (J Econ Dyn Control 34(10):1837–1858, 2010; J Econ Dyn Control 35(12):2167–2185, 2011), Bekiros and Paccagnini (Empir Econ 45(1):635–664, 2013), Hallin (J R Stat Soc Ser B 42:210–212, 1980; in: Anderson (ed) Time series analysis, theory and practice, North-Holland, Amsterdam, 1983; Adv Appl Probab 18:170–210, 1986), Francq and Zakoïan (J Econ 102:339–364, 2001), Franchi and Vidotto (Econ Lett 120:100–103, 2013) and Franchi and Paruolo (Comput Econ 46(4):613–626, 2015).

Suggested Citation

  • Maddalena Cavicchioli, 2020. "Invertibility and VAR Representations of Time-Varying Dynamic Stochastic General Equilibrium Models," Computational Economics, Springer;Society for Computational Economics, vol. 55(1), pages 61-86, January.
    • Handle: RePEc:kap:compec:v:55:y:2020:i:1:d:10.1007_s10614-018-9877-7
    DOI: 10.1007/s10614-018-9877-7
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    References listed on IDEAS

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    Cited by:

    1. Angelini, Giovanni & Sorge, Marco M., 2021. "Under the same (Chole)sky: DNK models, timing restrictions and recursive identification of monetary policy shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    State-space models; Time-varying DSGE; Changes in regime; Markov-switching DSGE; VAR representations;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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