Inference and Speci?cation Testing in DSGE Models with Possible Weak Identification
This paper considers inference and model diagnostics for log-linearized DSGE models allow- ing an unknown subset of parameters to be weakly (including un-) identified. The framework allows for latent state variables, measurement errors and also permits analysis using only part of the spectrum, say at the business cycle frequencies. The latter is important because DSGE mod- els are often designed to explain business cycle movements, not very long-run or very short-run ?uctuations. For inference, we first characterize weak identi?cation from a frequency domain perspective and propose a score test for the structural parameters based on the frequency domain maximum likelihood. The construction heavily exploits the structures of the DSGE solution, the score function and the information matrix. In particular, we show that the test statistic can be represented as the explained sum of squares from a complex-valued multivariate linear regression, where weak identification surfaces as (imperfectly) multicollinear regressors. Then, we prove that asymptotically valid inference can be carried out by inverting this test statistic and using Chi-square critical values. Next, we suggest procedures to construct uniform confidence bands for the impulse response function, the time path of the variance decomposition, the individual spectrum and the absolute coherency. For model diagnostics, we propose a family of frequency domain misspecification tests that are robust to weak identification. They can be used to test for misspecification in the mean, in the spectrum as well as misspecification within a band of frequencies. A simulation experiment using a calibrated model suggests that the tests have adequate size even in relatively small samples. It also suggests that it is possible to have informative confidence sets in DSGE models with unidentified parameters, particularly regard- ing the impulse responses functions. Although the paper focuses on DSGE models, the methods developed are potentially applicable to other dynamic models with well defined spectra, such as the stationary (factor-augmented) structural vector autoregression.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jan 2011|
|Date of revision:|
|Contact details of provider:|| Postal: 270 Bay State Road, Boston, MA 02215|
Web page: http://www.bu.edu/econ/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas J. Sargent & Paolo Surico, 2011. "Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals," American Economic Review, American Economic Association, vol. 101(1), pages 109-28, February.
- Kleibergen, Frank & Mavroeidis, Sophocles, 2009. "Weak Instrument Robust Tests in GMM and the New Keynesian Phillips Curve," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(3), pages 293-311.
- Hansen, Lars Peter & Sargent, Thomas J., 1993. "Seasonality and approximation errors in rational expectations models," Journal of Econometrics, Elsevier, vol. 55(1-2), pages 21-55.
- Christiano, Lawrence J. & Vigfusson, Robert J., 2003.
"Maximum likelihood in the frequency domain: the importance of time-to-plan,"
Journal of Monetary Economics,
Elsevier, vol. 50(4), pages 789-815, May.
- Lawrence J. Christiano & Robert J. Vigfusson, 2001. "Maximum likelihood in the frequency domain: the importance of time-to-plan," Working Paper 0106, Federal Reserve Bank of Cleveland.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
- Pablo Guerron-Quintana & Atsushi Inoue & Lutz Kilian, 2009.
"Frequentist inference in weakly identified DSGE models,"
09-13, Federal Reserve Bank of Philadelphia.
- Guerron-Quintana, Pablo A. & Inoue, Atsushi & Kilian, Lutz, 2009. "Frequentist Inference in Weakly Identified DSGE Models," CEPR Discussion Papers 7447, C.E.P.R. Discussion Papers.
- Donald W.K. Andrews & Xu Cheng, 2010.
"Estimation and Inference with Weak, Semi-strong, and Strong Identification,"
Cowles Foundation Discussion Papers
1773, Cowles Foundation for Research in Economics, Yale University.
- Donald W. K. Andrews & Xu Cheng, 2012. "Estimation and Inference With Weak, Semi‐Strong, and Strong Identification," Econometrica, Econometric Society, vol. 80(5), pages 2153-2211, 09.
- Donald W.K. Andrews & Xu Cheng, 2010. "Estimation and Inference with Weak, Semi-strong, and Strong Identification," Cowles Foundation Discussion Papers 1773R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2011.
- Nikolay Iskrev, 2009.
"Local Identification in DSGE Models,"
w200907, Banco de Portugal, Economics and Research Department.
- Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2006.
"Assessing Structural VARs,"
NBER Working Papers
12353, National Bureau of Economic Research, Inc.
- Jean-Marie Dufour & Lynda Khalaf & Maral Kichian, 2009. "Structural Multi-Equation Macroeconomic Models: Identification-Robust Estimation and Fit," Staff Working Papers 09-19, Bank of Canada.
- Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, vol. 115(2), pages 293-346, August.
- David N. DeJong & Chetan Dave, 2007.
"Introduction to Structural Macroeconometrics
[Structural Macroeconometrics]," Introductory Chapters, Princeton University Press.
- Zhongjun Qu & Denis Tkachenko, 2010. "Identification and Frequency Domain QML Estimation of Linearized DSGE Models," Boston University - Department of Economics - Working Papers Series WP2010-053, Boston University - Department of Economics.
- Sumru Altug, 1986.
"Time to build and aggregate fluctuations: some new evidence,"
277, Federal Reserve Bank of Minneapolis.
- Altug, Sumru, 1989. "Time-to-Build and Aggregate Fluctuations: Some New Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 889-920, November.
- Vaart,A. W. van der, 2000. "Asymptotic Statistics," Cambridge Books, Cambridge University Press, number 9780521784504, October.
When requesting a correction, please mention this item's handle: RePEc:bos:wpaper:wp2011-058. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gillian Gurish)
If references are entirely missing, you can add them using this form.