Agnostic Structural Disturbances (ASDs): Detecting and reducing misspecification in empirical macroeconomic models

Wouter J. Den Haan and Thomas Drechsel

Journal of Monetary Economics, 2021, vol. 117, issue C, 258-277

Abstract: Constructing empirical specifications for structural economic models is difficult, if not impossible. As shown in this paper, even minor misspecifications may lead to large distortions for parameter estimates and implied model properties. We propose a novel concept, namely an agnostic structural disturbance (ASD), that can be used to both detect and correct for misspecification of structural disturbances and is easy to implement. While agnostic in nature, the estimated coefficients and associated impulse response functions of the ASDs allow us to give them an economic interpretation. We adopt the methodology to the Smets–Wouters model and formulate an improved risk-premium and an improved investment-specific productivity disturbance.

Keywords: DSGE; Full-information model estimation; Structural disturbances (search for similar items in EconPapers)
JEL-codes: C13 C52 E30 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Agnostic structural disturbances (ASDs): detecting and reducing misspecification in empirical macroeconomic models (2020)
Working Paper: Agnostic Structural Disturbances (ASDs): Detecting and Reducing Misspecification in Empirical Macroeconomic Models (2018)
Working Paper: Agnostic Structural Disturbances (ASDs): Detecting and Reducing Misspecification in Empirical Macroeconomic Models (2018)
Working Paper: Agnostic structural disturbances (ASDs): detecting and reducing misspecification in empirical macroeconomic models (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:258-277

DOI: 10.1016/j.jmoneco.2020.01.005

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