Frequentist Evaluation of Small DSGE Models
Bibliographic Data
| ID | 19417697 |
|---|---|
| Authors | Gunnar Bårdsen (0000-0002-0834-7872, Norwegian University of Science and Technology), Luca Fanelli (0000-0001-5351-2876, University of Bologna) |
| Year | 2015 |
| Volume | 33 |
| Issue | 3 |
| Pages | 307-322 |
| Publication date | 2015-07-03 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Business and Economic Statistics (JOURNAL) |
| Journal identifiers | ISSN: 0735-0015 • E-ISSN: 1537-2707 |
| Publisher | Informa UK Limited (PUBLISHER • GB) |
| DOI | 10.1080/07350015.2014.948724 |
| OpenAlex | W1998668621 |
| Language | EN |
| Citations received | 1 |
| References cited | 50 |
This article proposes a new evaluation approach for the class of small-scale “hybrid” new Keynesian dynamic stochastic general equilibrium (NK-DSGE) models typically used in monetary policy and business cycle analysis. The empirical assessment of the NK-DSGE model is based on a conditional sequence of likelihood-based tests conducted in a vector autoregressive (VAR) system, in which both the low- and high-frequency implications of the model are addressed in a coherent framework. If the low-frequency behavior of the original time series of the model can be approximated by nonstationary processes, stationarity must be imposed by removing the stochastic trends. This gives rise to a set of recoverable unit roots/cointegration restrictions, in addition to the short-run cross-equation restrictions. The procedure is based on the sequence “LR1→LR2→LR3,” where LR1 is the cointegration rank test, LR2 is the cointegration matrix test, and LR3 is the cross-equation restrictions test: LR2 is computed conditional on LR1 and LR3 is computed conditional on LR2. The Type I errors of the three tests are set consistently with a prefixed overall nominal significance level. A bootstrap analog of the testing strategy is proposed in small samples. We show that the information stemming from the individual tests can be used constructively to uncover which features of the data are not captured by the theoretical model and thus to rectify, when possible, the specification. We investigate the empirical size properties of the proposed testing strategy by a Monte Carlo experiment and show the empirical usefulness of our approach by estimating and testing a monetary business cycle NK-DSGE model using U.S. quarterly data.
Autoregressive model · Cointegration · Dynamic stochastic general equilibrium · Econometrics · Economics · Monetary policy · Monte Carlo method · Statistics · Vector autoregression · Computer Science · Energy Load and Power Forecasting · Market Dynamics and Volatility · Mathematics · Monetary Policy and Economic Impact
Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models
Monetary Policy Rules and Macroeconomic Stability
Shocks and Frictions in US Business Cycles
Bootstrap Testing Linear Restrictions on Cointergrating Vectors
On the Fit of New Keynesian Models
Monetary Policy Shifts and the Stability of Monetary Policy Models
Technology Shocks in the New Keynesian Model
The scientific foundation of dynamic stochastic general equilibrium (DSGE) models
Cointegration and Tests of Present Value Models
Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
Determinacy and Identification with Taylor Rules
Monetary Policy, Inflation Expectations and The Price Puzzle
| Citations per year | 0.25 |
|---|---|
| Citation span | 2022 - 2022 (1) |
| Highly cited | No |