Global sensitivity analysis for macro-economic models
DSGE models are customarily built in the presence of uncertainties of various levels, such as the specification of behavioural equations of economic agents, the actual values of model parameters, and so on. When the degree of complexity of the model structure and its parameterization increases, it becomes not trivial if not impossible to know a priory the set of model coefficients assuring the stability of a model, or the mapping between structural parameters and the reduced form of a rational expectations model. Global sensitivity analysis techniques can be very useful in this context, helping to make the model structure and properties more transparent to the analyst. In this paper we will discuss two classes of methods: Monte Carlo Filtering techniques and functional/variance decomposition techniques. Monte Carlo filtering (MCF) techniques can be used to map the stability region of DSGE models and to detect parameters that mostly drive the violation of the rank condition. Such procedure is extremely useful for detecting critical regions in the model parameter space of DSGE models. In addition to stability, MCF techniques are also useful to map the fit of each singular series in complex multivariate systems, to answer the following types of questions: which parameters mostly drive the fit of GDP and which the fit of inflation? Is there any trade-off? The second class of sensitivity techniques is based on the so-called High-Dimensional Model Representation. Such a functional decomposition can be very effective in giving a non-parametric representation of the input-output mapping. For example, this approach can be used to map the relationship between structural parameters and the reduced form of rational expectation models. Applications to small DSGE models will complement the description of the methodologies.
|Date of creation:||04 Jul 2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://comp-econ.org/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670.
- Frank Smets & Raf Wouters, 2002.
"An estimated dynamic stochastic general equilibrium model of the euro area,"
Working Paper Research
35, National Bank of Belgium.
- Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
- 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.
- Tom Doan, . "RATS program to solve Lubik-Schorfheide JME 2007 DSGE model," Statistical Software Components RTZ00111, Boston College Department of Economics.
- Thomas Lubik & Frank Schorfheide, 2003. "Do Central Banks Respond to Exchange Rate Movements? A Structural Investigation," Economics Working Paper Archive 505, The Johns Hopkins University,Department of Economics.
- Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
When requesting a correction, please mention this item's handle: RePEc:sce:scecfa:42. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.