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How deep are the deep parameters?

Author

Listed:
  • Filippo Altissimo

    () (Bank of Italy, Economic Research Department)

  • Stefano Siviero

    () (Bank of Italy, Economic Research Department)

  • Daniele Terlizzese

    () (Bank of Italy, Economic Research Department)

Abstract

Policy evaluation based on the estimation of dynamic stochastic general equilibrium models with aggregate macroeconomic time series rests on the assumption that a representative agent can be identified, whose behavioural parameters are independent of the policy rules. Building on earlier work by Geweke, the main goal of this paper is to show that the representative agent is in general not structural, in the sense that its estimated behavioural parameters are not policyindependent. The paper identifies two different sources of nonstructurality. The latter is shown to be a fairly general feature of optimizing representative agent rational expectations models estimated on macroeconomic data.

Suggested Citation

  • Filippo Altissimo & Stefano Siviero & Daniele Terlizzese, 1999. "How deep are the deep parameters?," Temi di discussione (Economic working papers) 354, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_354_99
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    References listed on IDEAS

    as
    1. Sargent, Thomas J, 1981. "Interpreting Economic Time Series," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 213-248, April.
    2. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
    3. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
    4. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    5. Frank Hahn & Robert Solow, 1997. "A Critical Essay on Modern Macroeconomic Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258154x, October.
    6. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
    7. Malinvaud, Edmond, 1981. "Econometrics Faced with the Needs of Macroeconomic Policy," Econometrica, Econometric Society, vol. 49(6), pages 1363-1375, November.
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    Citations

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    Cited by:

    1. Alexis Penot & Grégory Levieuge, 2009. "The Fed and the ECB: why such an apparent difference in reactivity?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 1(4), pages 319-337, November.
    2. Salvador Barrios & Mathias Dolls & Anamaria Maftei & Andreas Peichl & Sara Riscado & Janos Varga & Christian Wittneben, 2019. "Dynamic Scoring Of Tax Reforms In The European Union," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 38(1), pages 239-262, January.
    3. Jesper Linde, 2002. "Monetary Policy Analysis in Backward-Looking Models," Annals of Economics and Statistics, GENES, issue 67-68, pages 155-182.
    4. Dolls, Mathias & Wittneben, Christian, 2017. "Dynamic Scoring of Tax Reforms in the EU," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168261, Verein für Socialpolitik / German Economic Association.
    5. Angeloni, Ignazio & Kashyap, Anil K. & Mojon, Benoît & Terlizzese, Daniele, 2003. "The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and U.S," Working Paper Series 268, European Central Bank.
    6. Fabio Fornari & Marcello Pericoli, 2000. "Stock Values and Fundamentals; Link or Irrationality?," Temi di discussione (Economic working papers) 378, Bank of Italy, Economic Research and International Relations Area.
    7. Libero Monteforte & Stefano Siviero, 2010. "The economic consequences of euro-area macro-modelling shortcuts," Applied Economics, Taylor & Francis Journals, vol. 42(19), pages 2399-2415.
    8. Siviero, S. & Terlizzese, D. & Visco, I., 1999. "Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study," Papers 357, Banca Italia - Servizio di Studi.
    9. Alexis Penot & Grégory Levieuge, 2009. "The Fed and the ECB: why such an apparent difference in reactivity?," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 1(4), pages 319-337, November.
    10. Libero Monteforte & Stefano Siviero, 2002. "The economic consequences of euro area modelling shortcuts," Temi di discussione (Economic working papers) 458, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    Structural models; Lucas Critique;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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