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

Sergey Ivashchenko and Willi Mutschler

No 8319, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: Both the investment adjustment costs parameters in Kim (2003) and the monetary policy rule parameters in An & Schorfheide (2007) are locally not identifiable. We show means to dissolve this theoretical lack of identification by looking at (1) the set of observed variables, (2) functional specifications (level vs. growth costs, output-gap definition), (3) model features (capital utilization, partial inflation indexation), and (4) additional shocks (investment-specific technology, preference). Moreover, we discuss the effect of these changes on the strength of parameter identification from a Bayesian point of view. Our results indicate that researchers should treat parameter identification as a model property, i.e. from a model building perspective.

Keywords: identification; weak identification; investment adjustment costs; Taylor rule; model features; shocks (search for similar items in EconPapers)
JEL-codes: C18 C51 C68 E22 E52 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2019-06
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The effect of observables, functional specifications, model features and shocks on identification in linearized DSGE models (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:8319

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