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A Composite Likelihood Approach for Dynamic Structural Models

Author

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  • Fabio Canova
  • Christian Matthes

Abstract

We explain how to use the composite likelihood function to ameliorate estimation, computational and inferential problems in dynamic stochastic general equilibrium models. We combine the information present in different models or data sets to estimate the parameters common across models. We provide intuition for why the methodology works and alternative interpretations of the estimators we construct and of the statistics we employ. We present a number of situations where the methodology has the potential to resolve well-known problems and to provide a justification for existing practices that pool different estimates. In each case, we provide an example to illustrate how the approach works and its properties in practice.

Suggested Citation

  • Fabio Canova & Christian Matthes, 2021. "A Composite Likelihood Approach for Dynamic Structural Models," The Economic Journal, Royal Economic Society, vol. 131(638), pages 2447-2477.
  • Handle: RePEc:oup:econjl:v:131:y:2021:i:638:p:2447-2477.
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    File URL: http://hdl.handle.net/10.1093/ej/ueab004
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    27. Cogley, Timothy & De Paoli, Bianca & Matthes, Christian & Nikolov, Kalin & Yates, Tony, 2011. "A Bayesian approach to optimal monetary policy with parameter and model uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2186-2212.
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    Cited by:

    1. Joshua C. C. Chan & Eric Eisenstat & Chenghan Hou & Gary Koop, 2020. "Composite likelihood methods for large Bayesian VARs with stochastic volatility," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(6), pages 692-711, September.
    2. Ho, Paul & Lubik, Thomas A. & Matthes, Christian, 2024. "Averaging impulse responses using prediction pools," Journal of Monetary Economics, Elsevier, vol. 146(C).
    3. Loria, Francesca & Matthes, Christian & Wang, Mu-Chun, 2022. "Economic theories and macroeconomic reality," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 105-117.
    4. Canova, Fabio & Sæterhagen Paulsen, Kenneth, 2023. "Symbolic stationarization of dynamic equilibrium models," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    5. Fabio Canova & Kenneth Sæterhagen Paulsen, 2021. "Symbolic Stationarization of Dynamic Equilibrium Models," Working Paper 2021/18, Norges Bank.
    6. Huong Hoang-Thi & Shah Fahad & Ashfaq Ahmad Shah & Tung Nguyen-Huu-Minh & Tuan Nguyen-Anh & Song Nguyen-Van & Nguyen To-The & Huong Nguyen-Thi-Lan, 2023. "Evaluating the farmers’ adoption behavior of water conservation in mountainous region Vietnam: extrinsic and intrinsic determinants," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 115(2), pages 1313-1330, January.

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    More about this item

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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