Invertibility and VAR Representations of Time-Varying Dynamic Stochastic General Equilibrium Models

Maddalena Cavicchioli ()
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Maddalena Cavicchioli: University of Modena and Reggio E.

Computational Economics, 2020, vol. 55, issue 1, No 3, 86 pages

Abstract: Abstract I study the invertibility problem for time-varying dynamic stochastic general equilibrium (DSGE) models. The question of interest is whether the shocks of a time-varying DSGE model can be recovered from an infinite time-varying VAR on the observable variables. Then I focus on DSGE models whose coefficients are driven by a Markov chain, and propose tractable methods to check their invertibility. Finally, I illustrate the validity of such methods via computations and examples. My results relate with the works of Amisano and Tristani (J Econ Dyn Control 34(10):1837–1858, 2010; J Econ Dyn Control 35(12):2167–2185, 2011), Bekiros and Paccagnini (Empir Econ 45(1):635–664, 2013), Hallin (J R Stat Soc Ser B 42:210–212, 1980; in: Anderson (ed) Time series analysis, theory and practice, North-Holland, Amsterdam, 1983; Adv Appl Probab 18:170–210, 1986), Francq and Zakoïan (J Econ 102:339–364, 2001), Franchi and Vidotto (Econ Lett 120:100–103, 2013) and Franchi and Paruolo (Comput Econ 46(4):613–626, 2015).

Keywords: State-space models; Time-varying DSGE; Changes in regime; Markov-switching DSGE; VAR representations (search for similar items in EconPapers)
JEL-codes: C01 C32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10614-018-9877-7

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