Impulse response identification in DSGE models

Martin Fukač

No RWP 10-07, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: Dynamic stochastic general equilibrium (DSGE) models have become a widely used tool for policymakers. This paper modifies the global identification theory used for structural vector autoregressions, and applies it to DSGE models. We use this theory to check whether a DSGE model structure allows for unique estimates of structural shocks and their dynamic effects. The potential cost of a lack of identification for policy oriented models along that specific dimension is huge, as the same model can generate a number of contrasting yet theoretically and empirically justifiable recommendations. The problem and methodology are illustrated using a simple New Keynesian business cycle model.

Date: 2010
New Economics Papers: this item is included in nep-cba and nep-dge
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Working Paper: Impulse Response Identification in DSGE Models (2009)
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