Citation

Discussion Paper Details

Please find the details for DP6791 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: How much structure in empirical models?

Author(s): Fabio Canova

Publication Date: April 2008

Keyword(s): DSGE models, Identification, Invertibility and SVAR models

Programme Area(s): International Macroeconomics

Abstract: This chapter highlights the problems that structural methods and SVAR approaches have when estimating DSGE models and examining their ability to capture important features of the data. We show that structural methods are subject to severe identification problems due, in large part, to the nature of DSGE models. The problems can be patched up in a number of ways, but solved only if DSGEs are completely reparametrized or respecified. The potential misspecification of the structural relationships give Bayesian methods an hedge over classical ones in structural estimation. SVAR approaches may face invertibility problems but simple diagnostics can help to detect and remedy these problems. A pragmatic empirical approach ought to use the flexibility of SVARs against potential misspecification of the structural relationships but must firmly tie SVARs to the class of DSGE models which could have have generated the data.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6791

Bibliographic Reference

Canova, F. 2008. 'How much structure in empirical models? '. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6791