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The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications

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  • Martin M. Andreasen

    ()
    (Aarhus University and CREATES)

  • Jesús Fernández-Villaverde

    ()
    (University of Pennsylvania, FEDEA, NBER, and CEPR)

  • Juan F. Rubio-Ramírez

    ()
    (Duke University, Federal Reserve Bank of Atlanta, and FEDEA)

Abstract

This paper studies the pruned state-space system for higher-order approximations to the solutions of DSGE models. For second- and third-order approximations, we derive the statistical properties of this system and provide closed-form expressions for ?first and second unconditional moments and impulse response functions. Thus, our analysis introduces GMM estimation for DSGE models approximated up to third-order and provides the foundation for indirect inference and SMM when simulation is required. We illustrate the usefulness of our approach by estimating a New Keynesian model with habits and Epstein-Zin preferences by GMM when using ?rst and second unconditional moments of macroeconomic and ?nancial data and by SMM when using additional third and fourth unconditional moments and non-Gaussian innovations.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2013-12.

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Length: 64
Date of creation: 04 Nov 2013
Date of revision:
Handle: RePEc:aah:create:2013-12

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Web page: http://www.econ.au.dk/afn/

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Cited by:
  1. Kollmann, Robert, 2013. "Tractable Latent State Filtering for Non-Linear DSGE Models Using a Second-Order Approximation," CEPR Discussion Papers 9469, C.E.P.R. Discussion Papers.
  2. Benjamin Born & Johannes Pfeifer, 2013. "Policy Risk and the Business Cycle," CESifo Working Paper Series 4336, CESifo Group Munich.
  3. Andrew T. Foerster, 2013. "Monetary policy regime switches and macroeconomic dynamic," Research Working Paper RWP 13-04, Federal Reserve Bank of Kansas City.
  4. Viktors Ajevskis, 2013. "Non-Local Solutions to Dynamic Equilibrium Models: the Approximate Stable Manifolds Approach," Working Papers 2013/03, Latvijas Banka.
  5. Michael Weber, 2014. "Nominal Rigidities and Asset Pricing," 2014 Meeting Papers 53, Society for Economic Dynamics.

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