The effect of observables, functional specifications, model features and shocks on identification in linearized DSGE models

Sergey Ivashchenko and Willi Mutschler

Economic Modelling, 2020, vol. 88, issue C, 280-292

Abstract: The decisions a researcher makes at the model building stage are crucial for parameter identification. This paper contains a number of applied tips for solving identifiability problems and improving the strength of DSGE model parameter identification by fine-tuning the (1) choice of observables, (2) functional specifications, (3) model features and (4) choice of structural shocks. We offer a formal approach based on well-established diagnostics and indicators to uncover and address both theoretical (yes/no) identifiability issues and weak identification from a Bayesian perspective. The concepts are illustrated by two exemplary models that demonstrate the identification properties of different investment adjustment cost specifications and output-gap definitions. Our results provide theoretical support for the use of growth adjustment costs, investment-specific technology, and partial inflation indexation.

Keywords: DSGE models; Local identification; Weak identification; Investment adjustment costs; Output-gap; Observables (search for similar items in EconPapers)
JEL-codes: C18 C51 C68 E22 E52 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999319307850
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The effect of observables, functional specifications, model features and shocks on identification in linearized DSGE models (2019)
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:eee:ecmode:v:88:y:2020:i:c:p:280-292

DOI: 10.1016/j.econmod.2019.09.039

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().