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(1990) 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. Keywords: Bayesian analysis; Dynamic stochastic general equilibrium model; Model evaluation,Statistical Identification,Vector autoregression, Factor-Augmented Vector Autoregression. JEL Classification: C11, C52
On the statistical identification of DSGE models
Consolo, Agostino.;Favero, Carlo;Paccagnini, Alessia
2009
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 implemented. In this article we illustrate how the concept of statistical identification, that was introduced and used by Spanos(1990) 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. Keywords: Bayesian analysis; Dynamic stochastic general equilibrium model; Model evaluation,Statistical Identification,Vector autoregression, Factor-Augmented Vector Autoregression. JEL Classification: C11, C52I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.