Which Structural Parameters Are "Structural"? Identifying the Sources of Instabilities in Economic Models
AbstractThe objective of this paper is to identify which parameters of a model are stable over time. Existing procedures can only be used to test whether a given subset of parameters is stable, and cannot be used to find which subset of parameters is stable. We propose a new procedure that is informative on the nature of instabilities affecting economic models, and sheds light on the economic interpretation and causes of such instabilities. Furthermore, our procedure provides clear guidelines on which parts of the model are reliable for policy analysis and which are possibly mis-specified. Our empirical findings suggest that instabilities during the Great Moderation were mainly concentrated in Euler and IS equations as well as in monetary policy. Such results offer important insights to guide the future theoretical development of macroeconomic models.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 08-02.
Length: 39 Pages
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
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Web page: http://econ.duke.edu/
Instability; Model Evaluation; Great Moderation;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-09 (All new papers)
- NEP-CBA-2008-02-09 (Central Banking)
- NEP-ECM-2008-02-09 (Econometrics)
- NEP-MAC-2008-02-09 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jesús Fernández-Villaverde & Juan F Rubio-Ramírez, 2007.
"How Structural Are Structural Parameters?,"
843644000000000057, UCLA Department of Economics.
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"On the fit and forecasting performance of New Keynesian models,"
Working Paper, Federal Reserve Bank of Atlanta
2004-37, Federal Reserve Bank of Atlanta.
- Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Raf, 2005. "On the fit and forecasting performance of New-Keynesian models," Working Paper Series 0491, European Central Bank.
- Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2005. "On the Fit and Forecasting Performance of New Keynesian Models," CEPR Discussion Papers 4848, C.E.P.R. Discussion Papers.
- Philippe Bacchetta & Eric van Wincoop, 2009.
"On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals,"
272009, Hong Kong Institute for Monetary Research.
- Philippe Bacchetta & Eric van Wincoop, 2009. "On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals," NBER Working Papers 15008, National Bureau of Economic Research, Inc.
- Bacchetta, Philippe & van Wincoop, Eric, 2009. "On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals," CEPR Discussion Papers 7309, C.E.P.R. Discussion Papers.
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