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Testing for linear and Markov switching DSGE models

  • Marian Vavra

    ()

    (National Bank of Slovakia)

This paper addresses the issue related to testing for non-linearity in economic models using new principal component based multivariate non-linearity tests. Monte Carlo results suggest that the new multivariate tests have good size and power properties even in small samples usually available in practice. The empirical results indicate that the use of linear economic models is unsuitable for policy recommendations.

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File URL: http://www.nbs.sk/_img/Documents/PUBLIK/WP_3-2013_Vavra.pdf
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Paper provided by Research Department, National Bank of Slovakia in its series Working and Discussion Papers with number WP 3/2013.

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Length: 29 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:svk:wpaper:1024
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  1. Rudebusch, Glenn D. & Swanson, Eric T., 2008. "Examining the bond premium puzzle with a DSGE model," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages S111-S126, October.
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  7. Philippe J. Deschamps, 1996. "Monte Carlo Methodology for LM and LR Autocorrelation Tests in Multivariate Regression," Annals of Economics and Statistics, GENES, issue 43, pages 149-169.
  8. Serena Ng & Pierre Perron, 2001. "A Note on the Selection of Time Series Models," Boston College Working Papers in Economics 500, Boston College Department of Economics.
  9. Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
  10. Xiaoshan Chen & Ronald Macdonald, 2012. "Realized and Optimal Monetary Policy Rules in an Estimated Markov‐Switching DSGE Model of the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1091-1116, 09.
  11. Bianchi, Francesco, 2008. "Regime switches, Agents’ Beliefs, and Post-World War II U.S. Macroeconomic Dynamics," MPRA Paper 24251, University Library of Munich, Germany, revised 19 Jan 2010.
  12. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," FRB Atlanta Working Paper 2004-14, Federal Reserve Bank of Atlanta.
  13. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden).
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  15. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  16. Peres-Neto, Pedro R. & Jackson, Donald A. & Somers, Keith M., 2005. "How many principal components? stopping rules for determining the number of non-trivial axes revisited," Computational Statistics & Data Analysis, Elsevier, vol. 49(4), pages 974-997, June.
  17. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  18. 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.
  19. Psaradakis, Zacharias & Vávra, Marián, 2014. "On testing for nonlinearity in multivariate time series," Economics Letters, Elsevier, vol. 125(1), pages 1-4.
  20. Andrew Blake, 1999. "A Radial Basis Function Artificial Neural Network Test for Neglected Nonlinearity," NIESR Discussion Papers 153, National Institute of Economic and Social Research.
  21. Jean Barthélemy & Magali Marx, 2012. "Solving Rational Expectations Models," Sciences Po publications info:hdl:2441/3ug0u3qte39, Sciences Po.
  22. Zheng Liu & Daniel Waggoner & Tao Zha, 2009. "Asymmetric Expectation Effects of Regime Shifts in Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 284-303, April.
  23. Troy A. Davig, 2007. "Phillips curve instability and optimal monetary policy," Research Working Paper RWP 07-04, Federal Reserve Bank of Kansas City.
  24. Philip Liu & Haroon Mumtaz, 2011. "Evolving Macroeconomic Dynamics in a Small Open Economy: An Estimated Markov Switching DSGE Model for the UK," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1443-1474, October.
  25. Deschamps, P.J., 1990. "Joint Tests For Regularity And Autocorrelation In Allocation Systems," Papers 9042, Tilburg - Center for Economic Research.
  26. Psaradakis, Zacharias & Sola, Martin, 1998. "Finite-sample properties of the maximum likelihood estimator in autoregressive models with Markov switching," Journal of Econometrics, Elsevier, vol. 86(2), pages 369-386, June.
  27. Andrew T. Foerster, 2013. "Monetary policy regime switches and macroeconomic dynamic," Research Working Paper RWP 13-04, Federal Reserve Bank of Kansas City.
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