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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.
    2. repec:wly:quante:v:9:y:2018:i:3:p:1243-1263 is not listed on IDEAS
    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.
    4. Abadir,Karim M. & Magnus,Jan R., 2005. "Matrix Algebra," Cambridge Books, Cambridge University Press, number 9780521537469, December.
    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. Andrzej Kocięcki & Marcin Kolasa, 2018. "Global identification of linearized DSGE models," Quantitative Economics, Econometric Society, vol. 9(3), pages 1243-1263, November.
    7. James D. Hamilton & Daniel F. Waggoner & Tao Zha, 2007. "Normalization in Econometrics," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 221-252.
    8. 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.
    9. repec:cup:cbooks:9780521822893 is not listed on IDEAS
    10. 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.
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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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