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Impulse response identification in DSGE models

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  • Martin Fukac

Abstract

Dynamic stochastic general equilibrium (DSGE) models have become a widely used tool for policymakers. This paper modifies the global identification theory used for structural vector autoregressions, and applies it to DSGE models. We use this theory to check whether a DSGE model structure allows for unique estimates of structural shocks and their dynamic effects. The potential cost of a lack of identification for policy oriented models along that specific dimension is huge, as the same model can generate a number of contrasting yet theoretically and empirically justifiable recommendations. The problem and methodology are illustrated using a simple New Keynesian business cycle model.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 10-07.

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Date of creation: 2010
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Handle: RePEc:fip:fedkrw:rwp10-07

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  1. Fabio Canova & Luca Sala, 2006. "Back to Square One: Identification Issues in DSGE Models," Working Papers 303, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Nikolay Iskrev, 2009. "Local Identification in DSGE Models," Working Papers w200907, Banco de Portugal, Economics and Research Department.
  3. Rothenberg, Thomas J, 1971. "Identification in Parametric Models," Econometrica, Econometric Society, vol. 39(3), pages 577-91, May.
  4. Iskrev, Nikolay, 2008. "Evaluating the information matrix in linearized DSGE models," Economics Letters, Elsevier, vol. 99(3), pages 607-610, June.
  5. Juan F. Rubio-Ram�rez & Daniel F. Waggoner & Tao Zha, 2010. "Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 665-696.
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