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VAR Information and the Empirical Validation of DSGE Models

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

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

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 or non-fundamental. 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 remarkably well for all variables, but understates the long-run effects of technology news on TFP.

Keywords: invertibility; non-fundamentalness; news shocks; DSGE model validation; structural VAR (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ecm, nep-ets and nep-mac
Date: 2016-04
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Working Paper: VAR Information and the Empirical Validation of DSGE Models (2016) Downloads
Working Paper: VAR Information and the Empirical Validation of DSGE Models (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:119

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