DP9442 The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications
Author(s): | Martin M. Andreasen, Jesús Fernández-Villaverde, Juan Francisco Rubio-Ramírez |
Publication Date: | April 2013 |
Keyword(s): | Epstein-Zin preferences, Higher-order perturbation approximation, Non-Gaussian innovations, yield curve |
JEL(s): | C15, C53, E30 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=9442 |
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 first and second unconditional moments of macroeconomic and financial data and by SMM when using additional third and fourth unconditional moments and non-Gaussian innovations.