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Discussion Paper Details

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Title: Back to square one: identification issues in DSGE models

Author(s): Fabio Canova and Luca Sala

Publication Date: March 2009

Keyword(s): DSGE models, Identification, Impulse Responses and small samples.

Programme Area(s): International Macroeconomics

Abstract: We investigate identification issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model-based impulse responses. Observational equivalence, partial and weak identification problems are widespread and typically produced by an ill-behaved mapping between the structural parameters and the coefficients of the solution. Different objective functions affect identification and small samples interact with parameters identification. Diagnostics to detect identification deficiencies are provided and applied to a widely used model.

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Bibliographic Reference

Canova, F and Sala, L. 2009. 'Back to square one: identification issues in DSGE models'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7234