Practical Tools for Policy Analysis in DSGE Models with Missing Channels

Caldara, Dario; Harrison, R. J.; Lipińska, Anna

doi:10.2139/ssrn.2195712

Cited by 2 publications

(3 citation statements)

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“…As a partial response to these concerns, the chapter concluded by listing recent contributions to the literature that advocate moving beyond a dogmatic belief in the DSGE model speci cation and restrictions, and drawing instead on the vast and better understood experience of tting the data with atheoretical models. Examples are the idea of combining the DSGE model and its reduced form VAR model as a way of relaxing all theoretical restrictions in the DSGE model Schorfheide, 2004, 2006); the idea of relaxing only some theoretical restrictions and letting the data "speak" about some features of the model such as trends (Canova, 2012) or short-run dynamics (Pesaran and Smith, 2011); the idea of starting from a DSGE model and adding information from econometric models to capture missing channels (Caldara et al, 2012) or the idea of starting from an atheoretical model that ts the data well and forcing it to satisfy some of the the equilibrium conditions implied by theory (Giacomini and Ragusa, 2012).…”

Section: Resultsmentioning

confidence: 99%

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The Relationship Between DSGE and VAR Models

Giacomini

2013

VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis chapter reviews the literature on the econometric relationship between DSGE and VAR models from the point of view of estimation and model validation. The mapping between DSGE and VAR models is broken down into three stages: 1) from DSGE to statespace model; 2) from state-space model to VAR(1); 3) from VAR(1) to nite order VAR.The focus is on discussing what can go wrong at each step of this mapping and on critically highlighting the hidden assumptions. I also point out some open research questions and interesting new research directions in the literature on the econometrics of DSGE models. These include, in no particular order: understanding the effects of log-linearization on estimation and identi cation; dealing with multiplicity of equilibria; estimating nonlinear DSGE models; incorporating into DSGE models information from atheoretical models and from survey data; adopting exible modelling approaches that combine the theoretical rigor of DSGE models and the econometric model's ability to t the data.

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Section: Resultsmentioning

confidence: 99%

“…where the coef cient matrices A and B implicitly depend on the structural parameters : Assuming normality of " t , the linear state space model (10) and (11) can be estimated using the Kalman lter.…”

Section: Stage 1 From Dsge To State-space Modelmentioning

confidence: 99%

The Relationship Between DSGE and VAR Models

Giacomini

2013

VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims

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“…Caldara et al. () formalize what they argue is already a practice at central banks of extending DSGE models to include missing channels, such as financial or housing sectors. They propose augmenting the DSGE model using proxies for the missing channels that are based on auxiliary econometric models.…”

Section: Lesson 2: What Does Not Workmentioning

confidence: 99%

Economic theory and forecasting: lessons from the literature

Giacomini

2015

The Econometrics Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The definition of "economic theory" includes a broad range of examples, such as accounting identities, disaggregation and spatial restrictions when forecasting aggregate variables, cointegration and forecasting with Dynamic Stochastic General Equilibrium (DSGE) models. We group the lessons into three themes. The first discusses the importance of using the correct econometric tools when answering the question. The second presents examples of theory-based forecasting that have not proven useful, such as theory-driven variable selection and some popular DSGE models. The third set of lessons discusses types of theoretical restrictions that have shown some usefulness in forecasting, such as accounting identities, disaggregation and spatial restrictions, and cointegrating relationships. We conclude by suggesting that economic theory might help in overcoming the widespread instability that affects the forecasting performance of econometric models by guiding the search for stable relationships that could be usefully exploited for forecasting. Terms of use: Documents in

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Practical Tools for Policy Analysis in DSGE Models with Missing Channels

Cited by 2 publications

References 26 publications

The Relationship Between DSGE and VAR Models

The Relationship Between DSGE and VAR Models

Economic theory and forecasting: lessons from the literature

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