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A note on the identification of dynamic economic models with generalized shock processes

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  • Reicher, Christopher Phillip

Abstract

DSGE models with generalized shock processes have been a major area of research in recent years. In this paper, I show that the structural parameters governing DSGE models are not identified when the driving process behind the model follows an unrestricted VAR. This finding implies that parameter estimates derived from recent attempts to estimate DSGE models with generalized driving processes should be treated with caution, and that there exists a tradeoff between identification and the risk of model misspecification.

Suggested Citation

  • Reicher, Christopher Phillip, 2013. "A note on the identification of dynamic economic models with generalized shock processes," Kiel Working Papers 1821, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1821
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    References listed on IDEAS

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    More about this item

    Keywords

    identification; DSGE models; observational equivalence; maximum likelihood;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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