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On the Statistical Identification of DSGE Models

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  • Agostino Consolo
  • Carlo A. Favero
  • Alessia Paccagnini

Abstract

Dynamic Stochastic General Equilibrium (DSGE) models are now considered attractive by the profession not only from the theoretical perspective but also from an empirical standpoint. As a consequence of this development, methods for diagnosing the fit of these models are being proposed and implemented. In this article we illustrate how the concept of statistical identification, that was introduced and used by Spanos(1990)to criticize traditional evaluation methods of Cowles Commission models, could be relevant for DSGE models. We conclude that the recently proposed model evaluation method, based on the DSGE ? VAR(?), might not satisfy the condition for statistical identification. However, our application also shows that the adoption of a FAVAR as a statistically identified benchmark leaves unaltered the support of the data for the DSGE model and that a DSGE-FAVAR can be an optimal forecasting model.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 324.

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Date of creation: 2007
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Handle: RePEc:igi:igierp:324

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Cited by:
  1. Dufour, Jean-Marie & Khalaf, Lynda & Kichian, Maral, 2010. "On the precision of Calvo parameter estimates in structural NKPC models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1582-1595, September.
  2. Paccagnini, Alessia, 2010. "DSGE Model Validation in a Bayesian Framework: an Assessment," MPRA Paper 24509, University Library of Munich, Germany.
  3. Nicholas Apergis & Christina Christou & James E. Payne, 2014. "Precious metal markets, stock markets and the macroeconomic environment: a FAVAR model approach," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 24(10), pages 691-703, May.
  4. Rangan Gupta &  Patrick Kanda & Mampho Modise & Alessia Paccagnini, 2013. "DGSE Model-Based Forecasting of Modeled and Non-Modeled Inflation Variables in South Africa," Working Papers, University of Milano-Bicocca, Department of Economics 259, University of Milano-Bicocca, Department of Economics, revised Nov 2013.
  5. Mehmet Balcilar & Rangan Gupta & Anandamayee Majumdar & Stephen M. Miller, 2012. "Was the Recent Downturn in US GDP Predictable?," Working Papers 201230, University of Pretoria, Department of Economics.
  6. Bekiros, Stelios D. & Paccagnini, Alessia, 2014. "Bayesian forecasting with small and medium scale factor-augmented vector autoregressive DSGE models," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 71(C), pages 298-323.
  7. Christopher Reicher, 2013. "A note on the identification of dynamic economic models with generalized shock processes," Kiel Working Papers 1821, Kiel Institute for the World Economy.
  8. Carlo A. Favero, 2007. "The Econometrics of Monetary Policy: an Overview," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 329, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Stelios Bekiros & Alessia Paccagnini, 2013. "On the predictability of time-varying VAR and DSGE models," Empirical Economics, Springer, Springer, vol. 45(1), pages 635-664, August.
  10. Alessia Paccagnini, 2012. "Comparing Hybrid DSGE Models," Working Papers, University of Milano-Bicocca, Department of Economics 228, University of Milano-Bicocca, Department of Economics, revised Dec 2012.
  11. Zhongjun Qu & Denis Tkachenko, 2010. "Identification and Frequency Domain QML Estimation of Linearized DSGE Models," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2010-053, Boston University - Department of Economics.
  12. Evren Caglar & Jagjit S. Chadha & Katsuyuki Shibayama, 2012. "Bayesian Estimation of DSGE Models: Is the Workhorse Model Identified?," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1205, Koc University-TUSIAD Economic Research Forum.
  13. Raffaella Giacomini, 2013. "The relationship between DSGE and VAR models," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP21/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  14. Rangan Gupta & Patrick T. Kanda & Mampho P. Modise & Alessia Paccagnini, 2014. "DSGE Model-Based Forecasting of Modeled and Non-Modeled Ination Variables in South Africa," Working Papers, Department of Research, Ipag Business School 2014-562, Department of Research, Ipag Business School.
  15. Dufour, Jean-Marie & Khalaf, Lynda & Kichian, Maral, 2013. "Identification-robust analysis of DSGE and structural macroeconomic models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 60(3), pages 340-350.

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