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On the statistical identification of DSGE models
[journal article]
Abstract
Dynamic Stochastic General Equilibrium (DSGE) models are now considered attractive by the profession not only from the theoretical perspective but also from an empirical standpoint. As a consequence of this development, methods for diagnosing the fit of these models are being proposed and implemente... view more
Dynamic Stochastic General Equilibrium (DSGE) models are now considered attractive by the profession not only from the theoretical perspective but also from an empirical standpoint. As a consequence of this development, methods for diagnosing the fit of these models are being proposed and implemented. In this article we illustrate how the concept of statistical identification, that was introduced and used by Spanos [Spanos, Aris, 1990. The simultaneous-equations model revisited: Statistical adequacy and identification. Journal of Econometrics 44, 87–105] to criticize traditional evaluation methods of Cowles Commission models, could be relevant for DSGE models. We conclude that the recently proposed model evaluation method, based on the DSGE−VAR(λ), might not satisfy the condition for statistical identification. However, our application also shows that the adoption of a FAVAR as a statistically identified benchmark leaves unaltered the support of the data for the DSGE model and that a DSGE-FAVAR can be an optimal forecasting model.... view less
Classification
Economic Statistics, Econometrics, Business Informatics
Free Keywords
C11; C52; Bayesian analysis; Dynamic stochastic general equilibrium model; Model evaluation; Statistical identification; Vector autoregression; Factor-augmented vector autoregression
Document language
English
Publication Year
2009
Page/Pages
p. 99-115
Journal
Journal of Econometrics, 150 (2009) 1
DOI
https://doi.org/10.1016/j.jeconom.2009.02.012
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)