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The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications

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  • Andreasen, Martin M.
  • Fernández-Villaverde, Jesús
  • Rubio-Ramírez, Juan Francisco

Abstract

This paper studies the pruned state-space system for higher-order approximations to the solutions of DSGE models. For second- and third-order approximations, we derive the statistical properties of this system and provide closed-form expressions for first and second unconditional moments and impulse response functions. Thus, our analysis introduces GMM estimation for DSGE models approximated up to third-order and provides the foundation for indirect inference and SMM when simulation is required. We illustrate the usefulness of our approach by estimating a New Keynesian model with habits and Epstein-Zin preferences by GMM when using first and second unconditional moments of macroeconomic and financial data and by SMM when using additional third and fourth unconditional moments and non-Gaussian innovations.

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  • Andreasen, Martin M. & Fernández-Villaverde, Jesús & Rubio-Ramírez, Juan Francisco, 2013. "The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications," CEPR Discussion Papers 9442, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9442
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    More about this item

    Keywords

    Epstein-Zin preferences; Higher-order perturbation approximation; Non-Gaussian innovations; Yield curve.;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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