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VAR Information and the Empirical Validation of DSGE Models

Mario Forni (), Luca Gambetti () and Luca Sala

No 11178, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A shock of interest can be recovered, either exactly or with a good approximation, by means of standard VAR techniques even when the structural MA representation is non- invertible. We propose a measure of how informative a VAR model is for a specific shock of interest. We show how to use such a measure for the validation of shocks' transmission mechanism of DSGE models through VARs. In an application, we validate a theory of news shocks. The theory does fairly well for all variables, but understates the long-run effects of technology news on TFP.

New Economics Papers: this item is included in nep-dge and nep-ets
Date: 2016-03
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