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How much structure in empirical models?

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  • Canova, Fabio

Abstract

This chapter highlights the problems that structural methods and SVAR approaches have when estimating DSGE models and examining their ability to capture important features of the data. We show that structural methods are subject to severe identification problems due, in large part, to the nature of DSGE models. The problems can be patched up in a number of ways, but solved only if DSGEs are completely reparametrized or respecified. The potential misspecification of the structural relationships give Bayesian methods an hedge over classical ones in structural estimation. SVAR approaches may face invertibility problems but simple diagnostics can help to detect and remedy these problems. A pragmatic empirical approach ought to use the flexibility of SVARs against potential misspecification of the structural relationships but must firmly tie SVARs to the class of DSGE models which could have have generated the data.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6791.

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Date of creation: Apr 2008
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Handle: RePEc:cpr:ceprdp:6791

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Keywords: DSGE models; Identification; Invertibility; SVAR models;

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Citations

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Cited by:
  1. G. Fagiolo & A. Roventini., 2009. "On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
  2. Forni, Lorenzo & Monteforte, Libero & Sessa, Luca, 2009. "The general equilibrium effects of fiscal policy: Estimates for the Euro area," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 559-585, April.
  3. Dosi, Giovanni & Fagiolo, Giorgio & Roventini, Andrea, 2010. "Schumpeter meeting Keynes: A policy-friendly model of endogenous growth and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1748-1767, September.
  4. Carlo A. Favero, 2007. "Model Evaluation in Macroeconometrics: from early empirical macroeconomic models to DSGE models," Working Papers 327, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Carlo A. Favero, 2007. "The Econometrics of Monetary Policy: an Overview," Working Papers 329, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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