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VAR Information and the Empirical Validation of DSGE Models

Luca Sala, Luca Gambetti () and Mario Forni ()
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Luca Sala: Universita' Bocconi

No 260, 2016 Meeting Papers from Society for Economic Dynamics

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 noninvertible or nonfundamental, possibly because it has more shocks than variables. We propose a measure of how informative a VAR model is for a specific shock, or a subset of shocks, 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, except for consumption and output, for which the model over-predicts the effects of news shocks.

New Economics Papers: this item is included in nep-dge
Date: 2016
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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:red:sed016:260

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