DSGE model restrictions for structural VAR identification
AbstractThe identification of reduced-form VAR model had been the subject of numerous debates in the literature. Different sets of identifying assumptions can lead to very different conclusions in the policy debate. This paper proposes a theoretically consistent identification strategy using restrictions implied by a DSGE model. Monte Carlo simulations suggest the proposed identification strategy is successful in recovering the true structural shocks from the data. In the face of misspecified model restrictions, the data tend to push the identified VAR responses away from the misspecified model and closer to the true data generating process.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 402.
Length: 36 pages
Date of creation: 28 Oct 2010
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VAR identification; model misspecification; DSGE model;
Other versions of this item:
- Philip Liu & Konstantinos Theodoridis, 2012. "DSGE Model Restrictions for Structural VAR Identification," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 61-95, December.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-06 (All new papers)
- NEP-CBA-2010-11-06 (Central Banking)
- NEP-DGE-2010-11-06 (Dynamic General Equilibrium)
- NEP-ECM-2010-11-06 (Econometrics)
- NEP-MAC-2010-11-06 (Macroeconomics)
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