Investigating the Relationship Between DSGE and SVAR Models

Adrian Pagan and Tim Robinson

No 112, NCER Working Paper Series from National Centre for Econometric Research

Abstract: DSGE models often contain variables for which data is not observed when estimating. Although DSGE models generally imply that there is a finite order SVAR in all the variables this may no longer be true for SVARs just in observable variables, and so there is a VAR-truncation problem. The paper examines this issue. It looks at five different studies using DSGE models that appear in the literature. Generally it emerges that the truncation issue is probably not that important, except possibly in small open economy models with external debt. Even when there is no truncation problem in VARs which control the dynamics) the structural impulse responses from both models may be different due to differing initial responses. It is shown that DSGE models incorporate some strong restrictions on the nature of SVAR models and these would need to employed for the two approaches to give the same initial estimates.

Keywords: Impulse Responses to DSGE; SVAR (search for similar items in EconPapers)
JEL-codes: C30 C36 E13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-05-19
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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