VAR Information and the Empirical Validation of DSGE Models

47 Pages Posted: 18 Apr 2016

See all articles by Mario Forni

Mario Forni

Università di Modena; Centre for Economic Policy Research (CEPR)

Luca Gambetti

Universitat Autonoma de Barcelona

Luca Sala

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

Date Written: March 2016

Abstract

A shock of interest can be recovered, either exactly or with a good approximation, by means of standard VAR techniques even when the structural MA representation is non-invertible. We propose a measure of how informative a VAR model is for a specific shock of interest. We show how to use such a measure for the validation of shocks' transmission mechanism of DSGE models through VARs. In an application, we validate a theory of news shocks. The theory does fairly well for all variables, but understates the long-run effects of technology news on TFP.

Suggested Citation

Forni, Mario and Gambetti, Luca and Sala, Luca, VAR Information and the Empirical Validation of DSGE Models (March 2016). CEPR Discussion Paper No. DP11178. Available at SSRN: https://ssrn.com/abstract=2766473

Mario Forni (Contact Author)

Università di Modena; Centre for Economic Policy Research (CEPR) ( email )

Luca Gambetti

Universitat Autonoma de Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

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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