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Which Structural Parameters Are "Structural"? Identifying the Sources of Instabilities in Economic Models

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Author Info
Inoue, Atsushi
Rossi, Barbara

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Abstract

The 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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File URL: http://www.econ.duke.edu/~brossi/InoueRossi2008.pdf
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Paper provided by Duke University, Department of Economics in its series Working Papers with number 08-02.

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Length: 39 Pages
Date of creation: 2008
Date of revision:
Handle: RePEc:duk:dukeec:08-02

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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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Fax: (919) 684-8974
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Related research
Keywords: Instability; Model Evaluation; Great Moderation;

Other versions of this item:

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
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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