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Approximating time varying structural models with time invariant structures

Listed author(s):
  • Canova, Fabio
  • Ferroni, Filippo
  • Matthes, Christian

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 a Gertler and Karadi's (2010) model are studied.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 10803.

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Date of creation: Sep 2015
Handle: RePEc:cpr:ceprdp:10803
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