DP10803 Approximating time varying structural models with time invariant structures
|Author(s):||Fabio Canova, Filippo Ferroni, Christian Matthes|
|Publication Date:||September 2015|
|Keyword(s):||endogenous variations, misspecification, Structural model, time varying coefficients|
|JEL(s):||C10, E27, E32|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10803|
The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identification and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of a Gertler and Karadi's (2010) model are studied.