Identifying the Sources of Model Misspecification

Chun-Huong Kuo, Atsushi Inoue and Barbara Rossi

No 821, Working Papers from Barcelona School of Economics

Abstract: In this paper we propose an empirical method for detecting and identifying misspecification in structural economic models. Our approach formalizes the common practice of adding "shocks" in the model, and identifies potential misspecificacion via forecast error variance decomposition and marginal likelihood anlalyses. The simulation results based on a samall-scale DSGE model demonstrate that our method can correctly identify the source of misspecification. Our empirical results show that state-of-the-art medium-scale New Keynesian DSGE models remain misspecified, pointing to asset and labor markets as the sources of the misspecification.

Keywords: DSGE models; misspecification; marginal likelihood (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (9)

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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 (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:821

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