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Identifiability of Dynamic Stochastic General Equilibrium Models with Covariance Restrictions

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  • Taremi, Mohammad

    (Department of Mathematical Science and Computer, Faculty of Economics, Allameh Tabataba'i University)

  • Esksndari, Farzad

    (Department of Mathematical Science and Computer, Faculty of Economics, Allameh Tabataba'i University)

  • Bameni Moghadam, Mohammad

    (Department of Mathematical Science and Computer, Faculty of Economics, Allameh Tabataba'i University)

Abstract

In this paper, we study the identification problem of parameters of Dynamic Stochastic General Equilibrium Models with emphasis on structural constraints, in order to make the number of observable variables is equal to the number of exogenous variables. We derive a set of identifiability conditions and suggest a procedure for a thorough analysis of identification at each point in the parameters space. The procedure can be applied, before DSGE models are estimated, to determine where identification fails. We also use a Monte Carlo simulation and study the effect of restrictions on the estimate. The results show that the use of restrictions for estimation, when identification is reduced, leads us to inaccurate estimates and unreliable inference even when the number of observations is large.

Suggested Citation

  • Taremi, Mohammad & Esksndari, Farzad & Bameni Moghadam, Mohammad, 2016. "Identifiability of Dynamic Stochastic General Equilibrium Models with Covariance Restrictions," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(3), pages 225-243, July.
    • Handle: RePEc:mbr:jmonec:v:11:y:2016:i:3:p:225-243
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    More about this item

    Keywords

    DSGE Model; Identifiability; Monte Carlo Simulation;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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