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Testing for parameter stability in DSGE models. The cases of France, Germany, Italy, and Spain

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  • Jürgen Jerger
  • Oke Röhe

Abstract

We estimate a New Keynesian DSGE model on French, German, Italian, and Spanish data. The main aim of this paper is to check for the respective sets of parameters that are stable over time, making use of the ESS procedure (“Estimate of Set of Stable parameters”) developed by Inoue and Rossi (Rev Econ Stat 93(4):1186–1204, 2011 ). This new econometric technique allows to address the stability properties of each single parameter in a DSGE model separately. In the case of France, Germany, and Italy our results point to structural breaks after the beginning of the second stage of EMU in the mid-nineties, while the estimates for Spain show a significant break just before the start of the third stage in 1998. Specifically, there are significant changes in monetary policy behavior for France, Italy, and Spain, while monetary policy in Germany seems to be stable over time. Copyright Springer-Verlag Berlin Heidelberg 2014

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  • Jürgen Jerger & Oke Röhe, 2014. "Testing for parameter stability in DSGE models. The cases of France, Germany, Italy, and Spain," International Economics and Economic Policy, Springer, vol. 11(3), pages 329-351, September.
    • Handle: RePEc:kap:iecepo:v:11:y:2014:i:3:p:329-351
    DOI: 10.1007/s10368-012-0228-1
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    2. Hurtado, Samuel, 2014. "DSGE models and the Lucas critique," Economic Modelling, Elsevier, vol. 44(S1), pages 12-19.
    3. Verstegen, Loes & Meijdam, Lex, 2016. "The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union : A DSGE Model for the Euro Area," Other publications TiSEM 2963247d-7fe3-4b3a-80b5-c, Tilburg University, School of Economics and Management.
    4. Loes Verstegen & Lex Meijdam, 2016. "The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union: A DSGE Model for the Euro Area," EcoMod2016 9622, EcoMod.

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    More about this item

    Keywords

    DSGE; EMU; Monetary policy; Structural breaks; E31; E32; E52;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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