Approximating Time Varying Structural Models with Time Invariant Structures

43 Pages Posted: 8 Sep 2015

See all articles by Fabio Canova

Fabio Canova

BI Norwegian Business School

Filippo Ferroni

Federal Reserve Bank of Chicago

Christian Matthes

Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

Abstract

The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identification and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of a Gertler and Karadi's (2010) model are studied.

Keywords: endogenous variations, misspecification, Structural model, time varying coefficients

JEL Classification: C10, E27, E32

Suggested Citation

Canova, Fabio and Ferroni, Filippo and Matthes, Christian, Approximating Time Varying Structural Models with Time Invariant Structures (September 2015). CEPR Discussion Paper No. DP10803, Available at SSRN: https://ssrn.com/abstract=2657159

Fabio Canova (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Filippo Ferroni

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Christian Matthes

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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