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Evaluating the strength of identification in DSGE models. An a priori approach

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  • Nikolay Iskrev

Abstract

This paper presents a new approach to parameter identification analysis in DSGE models wherein the strength of identification is treated as property of the underlying model and studied prior to estimation. The strength of identification reflects the empirical importance of the economic features represented by the parameters. Identification problems arise when some parameters are either nearly irrelevant or nearly redundant with respect to the aspects of reality the model is designed to explain. The strength of identification therefore is not only crucial for the estimation of models, but also has important implications for model development. The proposed measure of identification strength is based on the Fisher information matrix of DSGE models and depends on three factors: the parameter values, the set of observed variables and the sample size. By applying the proposed methodology, researchers can determine the effect of each factor on the strength of identification of individual parameters, and study how it is related to structural and statistical characteristics of the economic model. The methodology is illustrated using the medium-scale DSGE model estimated in Smets and Wouters (2007).

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Bibliographic Info

Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w201032.

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Date of creation: 2010
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Handle: RePEc:ptu:wpaper:w201032

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  1. Del Negro, Marco & Schorfheide, Frank, 2007. "Forming Priors for DSGE Models (and How It Affects the Assessment of Nominal Rigidities)," CEPR Discussion Papers 6119, C.E.P.R. Discussion Papers.
  2. Pablo Guerron-Quintana & Atsushi Inoue & Lutz Kilian, 2009. "Frequentist inference in weakly identified DSGE models," Working Papers 09-13, Federal Reserve Bank of Philadelphia.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Evaluating the strength of identification in DSGE models. An a priori approach
    by Christian Zimmermann in NEP-DGE blog on 2011-01-23 03:07:09
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Cited by:
  1. Mendicino, Caterina, 2012. "On the amplification role of collateral constraints," Economics Letters, Elsevier, vol. 117(2), pages 429-435.
  2. Sandra Gomes & Caterina Mendicino, 2012. "Housing Market Dynamics: Any News?," Working Papers Department of Economics 2012/23, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  3. Isaiah Andrews & Anna Mikusheva, 2014. "Weak Identification in Maximum Likelihood: A Question of Information," American Economic Review, American Economic Association, vol. 104(5), pages 195-99, May.
  4. Sandra Gomes & Nikolay Iskrev & Caterina Mendicino, 2013. "Monetary policy shocks: We got news!," Working Papers w201307, Banco de Portugal, Economics and Research Department.
  5. Iskrev, Nikolay, 2010. "Local identification in DSGE models," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 189-202, March.

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