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Identification Using Stability Restrictions

  • Leandro M. Magnusson

    ()

    (Department of Economics, Tulane University)

  • Sophocles Mavroeidis

    (Brown University)

Structural change, typically induced by policy regime shifts, is a common feature of dynamic economic models. We show that structural change can be used constructively to improve the identification of structural parameters that are stable over time. A leading example is models that are immune to the well-known Lucas (1976) critique. This insight is used to develop novel econometric methods that extend the widely used generalized method of moments (GMM). The proposed methods yield improved inference in a leading macroeconomic policy model.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1116.pdf
File Function: First version, 2010
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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1116.

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Length: 42 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:tul:wpaper:1116
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Web page: http://econ.tulane.edu

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