IDEAS home Printed from https://ideas.repec.org/p/nbp/nbpmis/101.html
   My bibliography  Save this paper

Skew-normal shocks in the linear state space form DSGE model

Author

Abstract

Observed macroeconomic data – notably GDP growth rate, inflation and interest rates – can be, and usually are skewed. Economists attempt to fit models to data by matching first and second moments or co-moments, but skewness is usually neglected. It is so probably because skewness cannot appear in linear (or linearized) models with Gaussian shocks, and shocks are usually assumed to be Gaussian. Skewness requires non-linearities or non-Gaussian shocks. In this paper we introduce skewness into the DSGE framework assuming skewed normal distribution for shocks while keeping the model linear (or linearized). We argue that such a skewness can be perceived as structural, since it concerns the nature of structural shocks. Importantly, the skewed normal distribution nests the normal one, so that skewness is not assumed, but only allowed for. We derive elementary facts about skewness propagation in the state space model and, using the well-known Lubik-Schorfheide model, we run simulations to investigate how skewness propagates from shocks to observables in a standard DSGE model. We also assess properties of an ad hoc two-steps estimator of models’ parameters, shocks’ skewness parameters among them.

Suggested Citation

  • Grzegorz Grabek & Bohdan Klos & Grzegorz Koloch, 2011. "Skew-normal shocks in the linear state space form DSGE model," NBP Working Papers 101, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:101
    as

    Download full text from publisher

    File URL: http://www.nbp.pl/publikacje/materialy_i_studia/101_en.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kim, Jinill & Ruge-Murcia, Francisco J., 2009. "How much inflation is necessary to grease the wheels?," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 365-377, April.
    2. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
    3. Gupta, Arjun K. & González-Farías, Graciela & Domínguez-Molina, J. Armando, 2004. "A multivariate skew normal distribution," Journal of Multivariate Analysis, Elsevier, vol. 89(1), pages 181-190, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cabral, Celso Rômulo Barbosa & da-Silva, Cibele Queiroz & Migon, Helio S., 2014. "A dynamic linear model with extended skew-normal for the initial distribution of the state parameter," Computational Statistics & Data Analysis, Elsevier, vol. 74(C), pages 64-80.

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbp:nbpmis:101. 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: (Zbigniew Polański). General contact details of provider: http://edirc.repec.org/data/nbpgvpl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.