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Information Criteria for Impulse Response Function Matching Estimation of DSGE Models

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Author Info
Alastair R. Hall
Atsushi Inoue
James M Nason
Barbara Rossi
Abstract

We propose new information criteria for impulse response function matching estimators (IRFMEs). These estimators yield sampling distributions of the structural parameters of dynamic sto- chastic general equilibrium (DSGE) models by minimizing the distance between sample and theoretical impulse responses. First, we propose an information criterion to select only the responses that produce consistent estimates of the true but unknown structural parameters: the Valid Impulse Response Selection Criterion (VIRSC). The criterion is especially useful for mis-speci?ed models. Second, we propose a criterion to select the impulse responses that are most informative about DSGE model parameters: the Relevant Impulse Response Selection Criterion (RIRSC). These criteria can be used in combination to select the subset of valid impulse response functions with minimal dimension that yields asymptotically efficient estimators. The criteria are general enough to apply to impulse responses estimated by VARs, local projections, and simulation methods. We show that the use of our criteria signi?cantly a¤ects estimates and inference about key parameters of two well-known new Keynesian DSGE models. Monte Carlo evidence indicates that the criteria yield gains in terms of ?nite sample bias as well as o¤ering tests statistics whose behavior is better approximated by ?rst order asymptotic theory. Thus, our criteria improve on existing methods used to implement IRFMEs.

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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 127.

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Length: 53 pages
Date of creation: 2009
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Handle: RePEc:man:cgbcrp:127

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  4. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June. [Downloadable!]
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  6. Dridi, Ramdan & Guay, Alain & Renault, Eric, 2007. "Indirect inference and calibration of dynamic stochastic general equilibrium models," Journal of Econometrics, Elsevier, vol. 136(2), pages 397-430, February. [Downloadable!] (restricted)
  7. Hall, Alastair & Inoue, Atsushi & Nason M, James & Rossi, Barbara, 2007. "Information Criteria for Impulse Response Function Matching Estimation of DSGE Models," Working Papers 07-04, Duke University, Department of Economics. [Downloadable!]
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  8. Lewis, Richard & Reinsel, Gregory C., 1985. "Prediction of multivariate time series by autoregressive model fitting," Journal of Multivariate Analysis, Elsevier, vol. 16(3), pages 393-411, June. [Downloadable!] (restricted)
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