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The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications

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  • Martin M. Andreasen
  • Jesús Fernández-Villaverde
  • Juan Rubio-Ramírez

Abstract

This paper studies the pruned state-space system for higher-order approximations to the solutions of DSGE models. For second- and third-order approximations, we derive the statistical properties of this system and provide closed-form expressions for first and second unconditional moments and impulse response functions. Thus, our analysis introduces GMM estimation for DSGE models approximated up to third-order and provides the foundation for indirect inference and SMM when simulation is required. We illustrate the usefulness of our approach by estimating a New Keynesian model with habits and Epstein-Zin preferences by GMM when using first and second unconditional moments of macroeconomic and financial data and by SMM when using additional third and fourth unconditional moments and non-Gaussian innovations.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18983.

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Date of creation: Apr 2013
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Handle: RePEc:nbr:nberwo:18983

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Cited by:
  1. Robert Kollmann, 2013. "Tractable latent state filtering for non-linear DSGE models using a second-order Approximation," CAMA Working Papers 2013-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Michael Weber, 2014. "Nominal Rigidities and Asset Pricing," 2014 Meeting Papers 53, Society for Economic Dynamics.
  3. Viktors Ajevskis, 2013. "Non-Local Solutions to Dynamic Equilibrium Models: the Approximate Stable Manifolds Approach," Working Papers 2013/03, Latvijas Banka.
  4. Benjamin Born & Johannes Pfeifer, 2011. "Policy Risk and the Business Cycle," Bonn Econ Discussion Papers bgse06_2011, University of Bonn, Germany.
  5. Andrew T. Foerster, 2013. "Monetary policy regime switches and macroeconomic dynamic," Research Working Paper RWP 13-04, Federal Reserve Bank of Kansas City.

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