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Approximating time varying structural models with time invariant structures

Author

Listed:
  • Fabio Canova

  • Filippo Ferroni

  • Christian Matthes

Abstract

The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identification and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of Gertler and Karadi s (2010) model are studied.

Suggested Citation

  • Fabio Canova & Filippo Ferroni & Christian Matthes, 2016. "Approximating time varying structural models with time invariant structures," Working Papers No 1/2016, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    • Handle: RePEc:bny:wpaper:0041
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    References listed on IDEAS

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    Cited by:

    1. Thomas A. Lubik & Christian Matthes, 2015. "Time-Varying Parameter Vector Autoregressions: Specification, Estimation, and an Application," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 323-352.
    2. Auray, Stéphane & Eyquem, Aurélien, 2019. "Episodes of war and peace in an estimated open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 105(C), pages 203-249.
    3. Filippo Ferroni & Stefano Grassi & Miguel A. León-Ledesma, 2017. "Selecting Primal Innovations in DSGE models," Working Paper Series WP-2017-20, Federal Reserve Bank of Chicago.
    4. Gulan, Adam, 2018. "Paradise lost? A brief history of DSGE macroeconomics," Research Discussion Papers 22/2018, Bank of Finland.

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