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Investigating the Relationship Between DSGE and SVAR Models

Author

Listed:
  • Adrian Pagan

    (UniMelb)

  • Tim Robinson

    (UniMelb)

Abstract

DSGE models often contain variables for which data is not observed when estimating. Although DSGE models generally imply that there is a finite order SVAR in all the variables this may no longer be true for SVARs just in observable variables, and so there is a VAR-truncation problem. The paper examines this issue. It looks at five different studies using DSGE models that appear in the literature. Generally it emerges that the truncation issue is probably not that important, except possibly in small open economy models with external debt. Even when there is no truncation problem in VARs which control the dynamics) the structural impulse responses from both models may be different due to differing initial responses. It is shown that DSGE models incorporate some strong restrictions on the nature of SVAR models and these would need to employed for the two approaches to give the same initial estimates.

Suggested Citation

  • Adrian Pagan & Tim Robinson, 2016. "Investigating the Relationship Between DSGE and SVAR Models," NCER Working Paper Series 112, National Centre for Econometric Research.
    • Handle: RePEc:qut:auncer:2016_03
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    File URL: http://www.ncer.edu.au/papers/documents/WP112.pdf
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    References listed on IDEAS

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    7. Alejandro Justiniano & Bruce Preston, 2010. "Monetary policy and uncertainty in an empirical small open‐economy model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 93-128, January.
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    11. Raffaella Giacomini, 2013. "The relationship between DSGE and VAR models," CeMMAP working papers CWP21/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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    Citations

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    Cited by:

    1. Paccagnini, Alessia, 2017. "Dealing with Misspecification in DSGE Models: A Survey," MPRA Paper 82914, University Library of Munich, Germany.
    2. Sam Ouliaris & Adrian Pagan, 2022. "Three Basic Issues that Arise when Using Informational Restrictions in SVARs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(1), pages 1-20, February.
    3. Xianglong Liu & Adrian R. Pagan & Tim Robinson, 2018. "Critically Assessing Estimated DSGE Models: A Case Study of a Multi‐sector Model," The Economic Record, The Economic Society of Australia, vol. 94(307), pages 349-371, December.

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    More about this item

    Keywords

    Impulse Responses to DSGE; SVAR;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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