Which Structural Parameters Are "Structural"? Identifying the Sources of Instabilities in Economic Models
The objective of this paper is to identify which parameters of a model are stable over time. Existing procedures can only be used to test whether a given subset of parameters is stable, and cannot be used to find which subset of parameters is stable. We propose a new procedure that is informative on the nature of instabilities affecting economic models, and sheds light on the economic interpretation and causes of such instabilities. Furthermore, our procedure provides clear guidelines on which parts of the model are reliable for policy analysis and which are possibly mis-specified. Our empirical findings suggest that instabilities during the Great Moderation were mainly concentrated in Euler and IS equations as well as in monetary policy. Such results offer important insights to guide the future theoretical development of macroeconomic models.
|Date of creation:||2008|
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- Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez, 2008.
"How Structural Are Structural Parameters?,"
NBER Chapters,in: NBER Macroeconomics Annual 2007, Volume 22, pages 83-137
National Bureau of Economic Research, Inc.
- Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez, 2007. "How Structural Are Structural Parameters?," NBER Working Papers 13166, National Bureau of Economic Research, Inc.
- Jesús Fernández-Villaverde & Juan F Rubio-Ramírez, 2007. "How Structural Are Structural Parameters?," Levine's Bibliography 843644000000000057, UCLA Department of Economics.
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- Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Raf, 2005. "On the fit and forecasting performance of New-Keynesian models," Working Paper Series 0491, European Central Bank.
- Del Negro, Marco & Schorfheide, Frank & Smets, Frank & Wouters, Rafael, 2005. "On the Fit and Forecasting Performance of New Keynesian Models," CEPR Discussion Papers 4848, C.E.P.R. Discussion Papers.