Kiel Working Papers, Kiel Institute for World Economics
No 1821:
A note on the identification of dynamic economic models with generalized shock processes
Christopher Reicher
Abstract: DSGE models with generalized shock processes have been a
major area of research in recent years. In this paper, I show that the
structural parameters governing DSGE models are not identified when the
driving process behind the model follows an unrestricted VAR. This finding
implies that parameter estimates derived from recent attempts to estimate
DSGE models with generalized driving processes should be treated with
caution, and that there exists a tradeoff between identification and the
risk of model misspecification
Keywords: Identification, DSGE models, observational equivalence, maximum likelihood; (follow links to similar papers)
JEL-Codes: C13,; C32,; E00; (follow links to similar papers)
10 pages, January 2013
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