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Selecting structural innovations in DSGE models

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Selecting structural innovations in DSGE models. / Ferroni, Filippo; Grassi, Stefano; León-Ledesma, Miguel A.

In: Journal of Applied Econometrics, Vol. 34, No. 2, 03.2019, p. 205-220.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Harvard

Ferroni, F, Grassi, S & León-Ledesma, MA 2019, 'Selecting structural innovations in DSGE models', Journal of Applied Econometrics, vol. 34, no. 2, pp. 205-220. https://doi.org/10.1002/jae.2664

APA

Ferroni, F., Grassi, S., & León-Ledesma, M. A. (2019). Selecting structural innovations in DSGE models. Journal of Applied Econometrics, 34(2), 205-220. https://doi.org/10.1002/jae.2664

CBE

Ferroni F, Grassi S, León-Ledesma MA. 2019. Selecting structural innovations in DSGE models. Journal of Applied Econometrics. 34(2):205-220. https://doi.org/10.1002/jae.2664

MLA

Ferroni, Filippo, Stefano Grassi and Miguel A. León-Ledesma. "Selecting structural innovations in DSGE models". Journal of Applied Econometrics. 2019, 34(2). 205-220. https://doi.org/10.1002/jae.2664

Vancouver

Ferroni F, Grassi S, León-Ledesma MA. Selecting structural innovations in DSGE models. Journal of Applied Econometrics. 2019 Mar;34(2):205-220. https://doi.org/10.1002/jae.2664

Author

Ferroni, Filippo ; Grassi, Stefano ; León-Ledesma, Miguel A. / Selecting structural innovations in DSGE models. In: Journal of Applied Econometrics. 2019 ; Vol. 34, No. 2. pp. 205-220.

Bibtex

@article{41cfed28b2994b43adfd08732dd78f86,
title = "Selecting structural innovations in DSGE models",
abstract = "Dynamic stochastic general equilibrium (DSGE) models are typically estimated assuming the existence of certain structural shocks that drive macroeconomic fluctuations. We analyze the consequences of estimating shocks that are “nonexistent” and propose a method to select the economic shocks driving macroeconomic uncertainty. Forcing these nonexisting shocks in estimation produces a downward bias in the estimated internal persistence of the model. We show how these distortions can be reduced by using priors for standard deviations whose support includes zero. The method allows us to accurately select shocks and estimate model parameters with high precision. We revisit the empirical evidence on an industry standard medium-scale DSGE model and find that government and price markup shocks are innovations that do not generate statistically significant dynamics.",
author = "Filippo Ferroni and Stefano Grassi and Le{\'o}n-Ledesma, {Miguel A.}",
year = "2019",
month = mar,
doi = "10.1002/jae.2664",
language = "English",
volume = "34",
pages = "205--220",
journal = "Journal of Applied Econometrics",
issn = "0883-7252",
publisher = "JohnWiley & Sons Ltd.",
number = "2",

}

RIS

TY - JOUR

T1 - Selecting structural innovations in DSGE models

AU - Ferroni, Filippo

AU - Grassi, Stefano

AU - León-Ledesma, Miguel A.

PY - 2019/3

Y1 - 2019/3

N2 - Dynamic stochastic general equilibrium (DSGE) models are typically estimated assuming the existence of certain structural shocks that drive macroeconomic fluctuations. We analyze the consequences of estimating shocks that are “nonexistent” and propose a method to select the economic shocks driving macroeconomic uncertainty. Forcing these nonexisting shocks in estimation produces a downward bias in the estimated internal persistence of the model. We show how these distortions can be reduced by using priors for standard deviations whose support includes zero. The method allows us to accurately select shocks and estimate model parameters with high precision. We revisit the empirical evidence on an industry standard medium-scale DSGE model and find that government and price markup shocks are innovations that do not generate statistically significant dynamics.

AB - Dynamic stochastic general equilibrium (DSGE) models are typically estimated assuming the existence of certain structural shocks that drive macroeconomic fluctuations. We analyze the consequences of estimating shocks that are “nonexistent” and propose a method to select the economic shocks driving macroeconomic uncertainty. Forcing these nonexisting shocks in estimation produces a downward bias in the estimated internal persistence of the model. We show how these distortions can be reduced by using priors for standard deviations whose support includes zero. The method allows us to accurately select shocks and estimate model parameters with high precision. We revisit the empirical evidence on an industry standard medium-scale DSGE model and find that government and price markup shocks are innovations that do not generate statistically significant dynamics.

UR - http://www.scopus.com/inward/record.url?scp=85056080052&partnerID=8YFLogxK

U2 - 10.1002/jae.2664

DO - 10.1002/jae.2664

M3 - Journal article

AN - SCOPUS:85056080052

VL - 34

SP - 205

EP - 220

JO - Journal of Applied Econometrics

JF - Journal of Applied Econometrics

SN - 0883-7252

IS - 2

ER -