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Testing for linear and Markov switching DSGE models

Author

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  • Marian Vavra

    () (National Bank of Slovakia)

Abstract

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.

Suggested Citation

  • Marian Vavra, 2013. "Testing for linear and Markov switching DSGE models," Working and Discussion Papers WP 3/2013, Research Department, National Bank of Slovakia.
  • Handle: RePEc:svk:wpaper:1024
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    File URL: http://www.nbs.sk/_img/Documents/PUBLIK/WP_3-2013_Vavra.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    DSGE model; Markov-switching; Monte Carlo method; principal components; nonlinearity testing;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • 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

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