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Impulse Response Identification in DSGE Models

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DSGE models have become a widely used tool for policymakers. This paper takes the global identification theory used for structural vectorautoregressions, and applies it to dynamic stochastic general equilibrium (DSGE) models. We use this modified 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 Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2009/14.

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Length: 38 p
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:nzb:nzbdps:2009/14

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  1. Canova, Fabio & Sala, Luca, 2006. "Back to square one: identification issues in DSGE models," Working Paper Series, European Central Bank 0583, European Central Bank.
  2. 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, Oxford University Press, vol. 77(2), pages 665-696.
  3. Nikolay Iskrev, 2009. "Local Identification in DSGE Models," Working Papers, Banco de Portugal, Economics and Research Department w200907, Banco de Portugal, Economics and Research Department.
  4. Iskrev, Nikolay, 2008. "Evaluating the information matrix in linearized DSGE models," Economics Letters, Elsevier, Elsevier, vol. 99(3), pages 607-610, June.
  5. Rothenberg, Thomas J, 1971. "Identification in Parametric Models," Econometrica, Econometric Society, Econometric Society, vol. 39(3), pages 577-91, May.
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