Journal Article

A Note on the Identification of Dynamic Economic Models with Generalized Shock Processes

Author

  • Claire Boeing-Reicher
Publication Date

Dynamic stochastic general equilibrium (DSGE) models with generalized shock processes, such as shock processes which follow a vector autoregression (VAR), have been an active area of research in recent years. Unfortunately, the structural parameters governing DSGE models are not identified when the driving process behind the model follows an unrestricted VAR. This finding implies that parameter estimates derived from recent attempts to estimate DSGE models with generalized driving processes should be treated with caution, and that there always exists a tradeoff between identification and the risk of model misspecification. However, these results also make it easier to address the issue of model misspecification by making it computationally easier to check the validity of cross-equation restrictions.

Info

JEL Classification
C13, C32, E00

Key Words

  • DSGE models
  • DSGE-Modell
  • Identification
  • maximum likelihood
  • shocks
  • Wedges