Information Criteria for Impulse Response Function Matching Estimation of DSGE Models

53 Pages Posted: 13 Nov 2009 Last revised: 6 Jul 2014

See all articles by Alastair R. Hall

Alastair R. Hall

North Carolina State University - Department of Economics; University of Manchester

Atsushi Inoue

Southern Methodist University

James M. Nason

North Carolina State University - Department of Economics

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 23, 2009

Abstract

We propose new information criteria for impulse response function matching estimators (IRFMEs). These estimators yield sampling distributions of the structural parameters of dynamic stochastic general equilibrium (DSGE) models by minimizing the distance between sample and theoretical impulse responses. First, we propose an information criterion to select only the responses that produce consistent estimates of the true but unknown structural parameters: the Valid Impulse Response Selection Criterion (VIRSC). The criterion is especially useful for mis-specified models. Second, we propose a criterion to select the impulse responses that are most informative about DSGE model parameters: the Relevant Impulse Response Selection Criterion (RIRSC). These criteria can be used in combination to select the subset of valid impulse response functions with minimal dimension that yields asymptotically efficient estimators. The criteria are general enough to apply to impulse responses estimated by VARs, local projections, and simulation methods. We show that the use of our criteria significantly affects estimates and inference about key parameters of two well-known new Keynesian DSGE models. Monte Carlo evidence indicates that the criteria yield gains in terms of finite sample bias as well as offering tests statistics whose behavior is better approximated by first order asymptotic theory. Thus, our criteria improve on existing methods used to implement IRFMEs.

JEL Classification: C32, E47, C52, C53

Suggested Citation

Hall, Alastair R. and Inoue, Atsushi and Nason, James M. and Rossi, Barbara, Information Criteria for Impulse Response Function Matching Estimation of DSGE Models (September 23, 2009). Economic Research Initiatives at Duke (ERID) Working Paper No. 29, Available at SSRN: https://ssrn.com/abstract=1504782

Alastair R. Hall

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States

University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

Atsushi Inoue

Southern Methodist University ( email )

Dallas, TX 75275
United States

James M. Nason

North Carolina State University - Department of Economics ( email )

Campus Box 8110
NC State University
Raleigh, NC 27695-8110
United States
(919) 513-2884 (Phone)
(919) 515-5613 (Fax)

Barbara Rossi (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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