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DSGE Models with Observation-Driven Time-Varying parameters

Giovanni Angelini () and Paolo Gorgi
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Paolo Gorgi: VU Amsterdam, The Netherlands

No 18-030/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper proposes a novel approach to introduce time-variation in structural parameters of DSGE models. Structural parameters are allowed to evolve over time via an observation-driven updating equation. The estimation of the resulting DSGE model can be easily performed by maximum likelihood without the need of time-consuming simulation-based methods. An application to a DSGE model with time varying volatility for structural shocks is presented. The results indicate a significant improvement in forecasting performance.

Keywords: DSGE models; score-driven models; time-varying parameters (search for similar items in EconPapers)
JEL-codes: C32 C5 (search for similar items in EconPapers)
Date: 2018-03-30
New Economics Papers: this item is included in nep-dge, nep-ecm, nep-ets and nep-ore
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