Testing for linear and Markov switching DSGE models

Marian Vavra ()

No WP 3/2013, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: This paper addresses the issue related to testing for non-linearity in economic models using new principal component based multivariate non-linearity tests. Monte Carlo results suggest that the new multivariate tests have good size and power properties even in small samples usually available in practice. The empirical results indicate that the use of linear economic models is unsuitable for policy recommendations.

Keywords: DSGE model; Markov-switching; Monte Carlo method; principal components; nonlinearity testing (search for similar items in EconPapers)
JEL-codes: C12 C15 C32 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-12
New Economics Papers: this item is included in nep-dge, nep-ecm and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:svk:wpaper:1024

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