The pruned state-space system for non-linear DSGE models: Theory and empirical applications

Martin M. Andreasen; Jesús Fernández-Villaverde; Juan F. Rubio-Ramírez

doi:10.1093/restud/rdx037

The pruned state-space system for non-linear DSGE models: Theory and empirical applications

Martin M. Andreasen, Jesús Fernández-Villaverde, Juan F. Rubio-Ramírez

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

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Abstract

This article studies the pruned state-space system for higher-order perturbation approximations to dynamic stochastic general equilibrium (DSGE) models.We show the stability of the pruned approximation up to third order and provide closed-form expressions for first and second unconditional moments and impulse response functions. Our results introduce generalized method of moments (GMM) estimation and impulse-response matching for DSGE models approximated up to third order and provide a foundation for indirect inference and simulated method of moments (SMM). As an application, we consider a New Keynesian model with Epstein-Zin preferences and two novel feedback effects from long-term bonds to the real economy, allowing us to match the level and variability of the 10-year term premium in the U.S. with a low relative risk aversion of 5.

Originalsprog	Engelsk
Tidsskrift	Review of Economic Studies
Vol/bind	85
Nummer	1
Sider (fra-til)	1-49
Antal sider	49
ISSN	0034-6527
DOI	https://doi.org/10.1093/restud/rdx037
Status	Udgivet - 1 jan. 2018

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10.1093/restud/rdx037

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Citationsformater

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abstract = "This article studies the pruned state-space system for higher-order perturbation approximations to dynamic stochastic general equilibrium (DSGE) models.We show the stability of the pruned approximation up to third order and provide closed-form expressions for first and second unconditional moments and impulse response functions. Our results introduce generalized method of moments (GMM) estimation and impulse-response matching for DSGE models approximated up to third order and provide a foundation for indirect inference and simulated method of moments (SMM). As an application, we consider a New Keynesian model with Epstein-Zin preferences and two novel feedback effects from long-term bonds to the real economy, allowing us to match the level and variability of the 10-year term premium in the U.S. with a low relative risk aversion of 5.",

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The pruned state-space system for non-linear DSGE models: Theory and empirical applications. / Andreasen, Martin M.; Fernández-Villaverde, Jesús; Rubio-Ramírez, Juan F.
I: Review of Economic Studies, Bind 85, Nr. 1, 01.01.2018, s. 1-49.

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

TY - JOUR

T1 - The pruned state-space system for non-linear DSGE models

T2 - Theory and empirical applications

AU - Andreasen, Martin M.

AU - Fernández-Villaverde, Jesús

AU - Rubio-Ramírez, Juan F.

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N2 - This article studies the pruned state-space system for higher-order perturbation approximations to dynamic stochastic general equilibrium (DSGE) models.We show the stability of the pruned approximation up to third order and provide closed-form expressions for first and second unconditional moments and impulse response functions. Our results introduce generalized method of moments (GMM) estimation and impulse-response matching for DSGE models approximated up to third order and provide a foundation for indirect inference and simulated method of moments (SMM). As an application, we consider a New Keynesian model with Epstein-Zin preferences and two novel feedback effects from long-term bonds to the real economy, allowing us to match the level and variability of the 10-year term premium in the U.S. with a low relative risk aversion of 5.

AB - This article studies the pruned state-space system for higher-order perturbation approximations to dynamic stochastic general equilibrium (DSGE) models.We show the stability of the pruned approximation up to third order and provide closed-form expressions for first and second unconditional moments and impulse response functions. Our results introduce generalized method of moments (GMM) estimation and impulse-response matching for DSGE models approximated up to third order and provide a foundation for indirect inference and simulated method of moments (SMM). As an application, we consider a New Keynesian model with Epstein-Zin preferences and two novel feedback effects from long-term bonds to the real economy, allowing us to match the level and variability of the 10-year term premium in the U.S. with a low relative risk aversion of 5.

KW - Epstein-Zin preferences

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KW - Higher-order perturbation approximation

KW - Yield curve

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JO - Review of Economic Studies

JF - Review of Economic Studies

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The pruned state-space system for non-linear DSGE models: Theory and empirical applications

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