Identifying the Sources of Model Misspecification

Barbara Rossi, Atsushi Inoue and Chun-Hung Kuo

No 10140, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In this paper we propose empirical methods for detecting and identifying misspecifications in DSGE models. We introduce wedges in a DSGE model and identify potential misspecification via forecast error variance decomposition (FEVD) and marginal likelihood analyses. Our simulation results based on a small-scale DSGE model demonstrate that our method can correctly identify the source of misspecification. Our empirical results show that the medium-scale New Keynesian DSGE model that incorporates features in the recent empirical macro literature is still very much misspecified; our analysis highlights that the asset and labor markets may be the source of the misspecification.

Keywords: Dsge models; Empirical macroeconomics; Model misspecification (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-dge, nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://cepr.org/publications/DP10140 (application/pdf)

Related works:
Journal Article: Identifying the sources of model misspecification (2020)
Working Paper: Identifying the sources of model misspecification (2018)
Working Paper: Identifying the Sources of Model Misspecification (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:10140

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP10140

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().