The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications

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

Research output: Working paper/Preprint Working paperResearch

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Abstract

This paper studies the pruned state-space system for higher-order approximations to the solutions of DSGE models. For second- and third-order approximations, we derive the statistical properties of this system and provide closed-form expressions for …first and second unconditional moments and impulse response functions. Thus, our analysis introduces GMM estimation for DSGE models approximated up to third-order and provides the foundation for indirect inference and SMM when simulation is required. We illustrate the usefulness of our approach by estimating a New Keynesian model with habits and Epstein-Zin preferences by GMM when using …rst and second unconditional moments of macroeconomic and …nancial data and by SMM when using additional third and fourth unconditional moments and non-Gaussian innovations.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages64
Publication statusPublished - 18 Apr 2013
SeriesCREATES Research Paper
Number2013-12

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