Impulse Response Matching Estimators for DSGE Models

CFS Working Paper No. 498

56 Pages Posted: 5 Dec 2014

See all articles by Pablo Guerrón-Quintana

Pablo Guerrón-Quintana

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Atsushi Inoue

Vanderbilt University - College of Arts and Science - Department of Economics

Lutz Kilian

University of Michigan at Ann Arbor - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: November 15, 2014

Abstract

One of the leading methods of estimating the structural parameters of DSGE models is the VAR-based impulse response matching estimator. The existing asympotic theory for this estimator does not cover situations in which the number of impulse response parameters exceeds the number of VAR model parameters. Situations in which this order condition is violated arise routinely in applied work. We establish the consistency of the impulse response matching estimator in this situation, we derive its asymptotic distribution, and we show how this distribution can be approximated by bootstrap methods. Our methods of inference remain asymptotically valid when the order condition is satisfied, regardless of whether the usual rank condition for the application of the delta method holds. Our analysis sheds new light on the choice of the weighting matrix and covers both weakly and strongly identified DSGE model parameters. We also show that under our assumptions special care is needed to ensure the asymptotic validity of Bayesian methods of inference. A simulation study suggests that the frequentist and Bayesian point and interval estimators we propose are reasonably accurate in finite samples. We also show that using these methods may affect the substantive conclusions in empirical work.

Keywords: Structural estimation, DSGE, VAR, impulse response, nonstandard asymptotics, bootstrap, weak identi cation, robust inference

JEL Classification: C32, C52, E30, E50

Suggested Citation

Guerron-Quintana, Pablo and Inoue, Atsushi and Kilian, Lutz, Impulse Response Matching Estimators for DSGE Models (November 15, 2014). CFS Working Paper No. 498. Available at SSRN: https://ssrn.com/abstract=2533453 or http://dx.doi.org/10.2139/ssrn.2533453

Pablo Guerron-Quintana

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Atsushi Inoue

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Lutz Kilian (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-2320 (Phone)
734-764-2769 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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