Back to Square One: Identification Issues in DSGE Models

47 Pages Posted: 7 Apr 2009

See all articles by Fabio Canova

Fabio Canova

Bi norwegian business school

Luca Sala

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER)

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Date Written: March 2009

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.

Keywords: DSGE models, Identification, Impulse Responses, small samples

JEL Classification: C10, C52, E32, E50

Suggested Citation

Canova, Fabio and Sala, Luca, Back to Square One: Identification Issues in DSGE Models (March 2009). CEPR Discussion Paper No. DP7234. Available at SSRN: https://ssrn.com/abstract=1372554

Fabio Canova (Contact Author)

Bi norwegian business school ( email )

Nydalsveien 37
Oslo, 0484
Norway

Luca Sala

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 02 5836 3326 (Phone)

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