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A DSGE Model with Housing in the Cointegrated VAR Framework


  • Bjørnar Karlsen Kivedal

    () (Department of Economics, Norwegian University of Science and Technology)


In order to empirically investigate the assumptions underlying a theoretical dynamic stochastic general equilibrium (DSGE) model, the long-run and the short-run structure of the model may be imposed in the framework given by a cointegrated vector autoregression (CVAR) model. By following the method outlined in Juselius and Franchi (2007), I use the CVAR model to investigate the restrictions underlying the DSGE model in Iacoviello (2005), which is a monetary business cycle model that includes housing in order to include e ects from the nancial accelerator. This yields a common trends representation of the data subject to the theoretical constraints of the DSGE model which can be used to calculate the impulse responses for different shocks. These impulse responses are then compared to the impulse responses presented in Iacoviello (2005). The main finding is that the results given by the estimated CVAR model do not correspond well to the restrictions of the DSGE model. This is shown both by testing the cointegrating relationships implied by the long-run relations, and the response to shocks in the period for which the model is estimated. Imposing theoretical restrictions pertaining to the DSGE model in Iacoviello (2005) on his estimated VAR model yields different impulse responses from various shocks which change some of the main findings of the model. Particularly, imposing long-run homogeneity between housing prices and output and imposing the Fisher relationship which is assumed in the theoretical model seems to yield results which are opposite of what the financial accelerator, which is one of the key motivations behind the model in Iacoviello (2005), suggests. The non-stationarity of inflation and the nominal interest rate may be important reasons for this, together with the non-acceptance of the imposed long-run hypotheses.

Suggested Citation

  • Bjørnar Karlsen Kivedal, 2012. "A DSGE Model with Housing in the Cointegrated VAR Framework," Working Paper Series 12712, Department of Economics, Norwegian University of Science and Technology.
  • Handle: RePEc:nst:samfok:12712

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    References listed on IDEAS

    1. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    2. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    5. Johansen, S ren, 2000. "A Bartlett Correction Factor For Tests On The Cointegrating Relations," Econometric Theory, Cambridge University Press, vol. 16(05), pages 740-778, October.
    6. Ireland, Peter N., 2004. "A method for taking models to the data," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1205-1226, March.
    7. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, June.
    8. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    9. Johansen, Soren, 2002. "A small sample correction for tests of hypotheses on the cointegrating vectors," Journal of Econometrics, Elsevier, vol. 111(2), pages 195-221, December.
    10. David N. DeJong & Chetan Dave, 2007. "Introduction to Structural Macroeconometrics," Introductory Chapters,in: Structural Macroeconometrics Princeton University Press.
    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    12. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, June.
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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