On ABCs (and Ds) of VAR representations of DSGE models

Massimo Franchi () and Paolo Paruolo

Working Paper Series from The Rimini Centre for Economic Analysis

Abstract: This paper shows that the poor man's invertibility condition in Fernández-Villaverde et al. (2007) is, in general, sufficient but not necessary for fundamentalness; that is, a violation of this condition does not necessarily imply the impossibility of recovering the structural shocks of a DSGE via a VAR. The permanent income model in Fernández-Villaverde et al. (2007) is used to illustrate this fact. A necessary and sufficient condition for fundamentalness is formulated and its relations with the poor man's invertibility condition are discussed.

New Economics Papers: this item is included in nep-dge
Date: 2012-07, Revised 2012-08
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Working Paper: On ABCs (and Ds) of VAR representations of DSGE models (2012)
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