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Matching Theory and Data: Bayesian Vector Autoregression and Dynamic Stochastic General Equilibrium Models

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  • Alexander Kriwoluzky

Abstract

This paper shows how to identify the structural shocks of a Vector Autoregression (VAR) while simultaneously estimating a dynamic stochastic general equilibrium (DSGE) model that is not assumed to replicate the data-generating process. It proposes a framework for estimating the parameters of the VAR model and the DSGE model jointly: the VAR model is identified by sign restrictions derived from the DSGE model; the DSGE model is estimated by matching the corresponding impulse response functions.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2009/29.

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Date of creation: 2009
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Handle: RePEc:eui:euiwps:eco2009/29

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Keywords: Bayesian Model Estimation; Vector Autoregression; Identification;

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References

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  1. Markku Lanne & Helmut Luetkepohl & Katarzyna Maciejowska, 2009. "Structural Vector Autoregressions with Markov Switching," Economics Working Papers ECO2009/06, European University Institute.
  2. Markku Lanne, Helmut Luetkepohl, 2006. "Identifying Monetary Policy Shocks via Changes in Volatility," Economics Working Papers ECO2006/23, European University Institute.
  3. Mountford, A.W. & Uhlig, H.F.H.V.S., 2002. "What are the Effects of Fiscal Policy Shocks?," Discussion Paper 2002-31, Tilburg University, Center for Economic Research.
  4. Harald Uhlig, 1997. "Bayesian Vector Autoregressions with Stochastic Volatility," Econometrica, Econometric Society, vol. 65(1), pages 59-74, January.
  5. Juan Francisco Rubio-Ramírez & Daniel Waggoner & Tao Zha, 2005. "Markov-switching structural vector autoregressions: theory and application," Working Paper 2005-27, Federal Reserve Bank of Atlanta.
  6. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
  7. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
  8. Fabio Canova & Luca Sala, 2007. "Back to square one: identification issues in DSGE models," Banco de Espa�a Working Papers 0715, Banco de Espa�a.
  9. Ravn, Morten O. & Schmitt-Grohé, Stephanie & Uribe, Martín, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," CEPR Discussion Papers 6541, C.E.P.R. Discussion Papers.
  10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  11. Markku Lanne & Helmut Luetkepohl, 2006. "Structural Vector Autoregressions with Nonnormal Residuals," CESifo Working Paper Series 1651, CESifo Group Munich.
  12. Marco Del Negro & Frank Schorfheide, 2002. "Priors from general equilibrium models for VARs," Working Paper 2002-14, Federal Reserve Bank of Atlanta.
  13. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  14. Andreas Beyer & Roger E.A. Farmer, 2006. "Identification Problems in SDGE Models with an illustration to a small Macro model," Computing in Economics and Finance 2006 81, Society for Computational Economics.
  15. Ingram, Beth F. & Whiteman, Charles H., 1994. "Supplanting the 'Minnesota' prior: Forecasting macroeconomic time series using real business cycle model priors," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 497-510, December.
  16. Karel Mertens & Morten O. Ravn, 2008. "The Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks: Theory and Empirical Evidence," Economics Working Papers ECO2008/05, European University Institute.
  17. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
  18. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  19. Ravn, Morten O. & Schmitt-Grohé, Stephanie & Uribe, Martín & Uusküla, Lenno, 2009. "Deep Habits and the Dynamic Effects of Monetary Policy Shocks," CEPR Discussion Papers 7128, C.E.P.R. Discussion Papers.
  20. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  21. Troy Davig & Eric M. Leeper, 2007. "Fluctuating Macro Policies and the Fiscal Theory," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 247-316 National Bureau of Economic Research, Inc.
  22. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  23. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
  24. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
  25. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Theory," Econometrica, Econometric Society, vol. 52(3), pages 681-700, May.
  26. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Matching Theory and Data: Bayesian Vector Autoregression and Dynamic Stochastic General Equilibrium Models
    by Christian Zimmermann in NEP-DGE blog on 2009-09-27 01:45:04
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Cited by:
  1. Alexander Kriwoluzky, 2009. "Pre-announcement and Timing - The Effects of a Government Expenditure Shock," Economics Working Papers ECO2009/40, European University Institute.

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