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

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  • Andreasen, Martin M.
  • Fernández-Villaverde, Jesús
  • Rubio-Ramírez, Juan Francisco

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 first and second unconditional moments of macroeconomic and financial 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9442.

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Date of creation: Apr 2013
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Handle: RePEc:cpr:ceprdp:9442

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Related research

Keywords: Epstein-Zin preferences; Higher-order perturbation approximation; Non-Gaussian innovations; Yield curve.;

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Citations

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Cited by:
  1. Viktors Ajevskis, 2013. "Non-Local Solutions to Dynamic Equilibrium Models: the Approximate Stable Manifolds Approach," Working Papers 2013/03, Latvijas Banka.
  2. Robert Kollmann, 2013. "Tractable Latent State Filtering for Non-Linear DSGE Models Using a Second-Order Approximation," Working Papers ECARES ECARES 2013-24, ULB -- Universite Libre de Bruxelles.
  3. Benjamin Born & Johannes Pfeifer, 2013. "Policy Risk and the Business Cycle," CESifo Working Paper Series 4336, CESifo Group Munich.
  4. Andrew Foerster, 2013. "Monetary Policy Regime Switches and Macroeconomic Dynamics," 2013 Meeting Papers 906, Society for Economic Dynamics.

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