DP11178 VAR Information and the Empirical Validation of DSGE Models
|Author(s):||Mario Forni, Luca Gambetti, Luca Sala|
|Publication Date:||March 2016|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11178|
A shock of interest can be recovered, either exactly or with a good approximation, by means of standard VAR techniques even when the structural MA representation is non- invertible. We propose a measure of how informative a VAR model is for a specific shock of interest. We show how to use such a measure for the validation of shocks' transmission mechanism of DSGE models through VARs. In an application, we validate a theory of news shocks. The theory does fairly well for all variables, but understates the long-run effects of technology news on TFP.