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The Statistical Implications of Common Identifying Restrictions for DSGE Models

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  • Stephen Morris

    (UC San Diego)

Abstract

I reveal identification failures in a well-known dynamic stochastic general equilibrium (DSGE) model, and study the statistical implications of common identifying restrictions. First, I provide a fully analytical methodology for determining all observationally equivalent values of the structural parameters in any parameter space. I show that either parameter admissibility or sign restrictions may yield global identification for some parameter realizations, but not for others. Second, I derive a "plug-in" maximum likelihood estimator, which requires no numerical search. I use this tool to demonstrate that the idiosyncratic identifying restriction directly impinges on both the location and distribution of the small-sample MLE, and compute correctly sized confidence intervals.

Suggested Citation

  • Stephen Morris, 2014. "The Statistical Implications of Common Identifying Restrictions for DSGE Models," 2014 Meeting Papers 738, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:738
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    File URL: https://economicdynamics.org/meetpapers/2014/paper_738.pdf
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    References listed on IDEAS

    as
    1. Martin Andreasen, 2010. "How to Maximize the Likelihood Function for a DSGE Model," Computational Economics, Springer;Society for Computational Economics, vol. 35(2), pages 127-154, February.
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    3. Ríos-Rull, José-Víctor & Schorfheide, Frank & Fuentes-Albero, Cristina & Kryshko, Maxym & Santaeulàlia-Llopis, Raül, 2012. "Methods versus substance: Measuring the effects of technology shocks," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 826-846.
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    5. 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.
    6. James D. Hamilton & Daniel F. Waggoner & Tao Zha, 2007. "Normalization in Econometrics," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 221-252.
    7. Zhongjun Qu & Denis Tkachenko, 2012. "Identification and frequency domain quasi‐maximum likelihood estimation of linearized dynamic stochastic general equilibrium models," Quantitative Economics, Econometric Society, vol. 3(1), pages 95-132, March.
    8. repec:cup:cbooks:9780521822893 is not listed on IDEAS
    9. Raffaella Giacomini, 2013. "The relationship between DSGE and VAR models," CeMMAP working papers CWP21/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Statistical Implications of Common Identifying Restrictions for DSGE Models
      by Christian Zimmermann in NEP-DGE blog on 2015-02-05 22:29:18

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