A Monte Carlo procedure for checking identification in DSGE models

Le, Vo Phuong Mai; Minford, Patrick; Wickens, Michael

doi:10.1016/j.jedc.2017.01.009

Cited by 11 publications

(22 citation statements)

References 15 publications

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“…The Taylor rule coefficient of output and inflation, elasticity of demand for exports and imports are consistent with a lot of authors' estimations, e.g. Christiano et al (2005), Smets and Wouters (2007) and Le et al (2013). Table 6 shows the persistence 12 and volatility 13 of the shocks after estimation.…”

Section: Assessing the Fit Of The Estimated Modelsupporting

confidence: 85%

“…The estimation by indirect inference chooses the parameters of the DSGE model in a way that the simulated model generates estimates of the auxiliary model that is similar to those obtained from the data. Le et al (2013) found that using indirect inference is useful when identification is in doubt. Their numerical procedure found the DSGE model study of Smets and Wouters (2003) to be over-identified and a three equation New Keynesian model similar to Clarida, Gali and Gertler (1999) was identified.…”

Section: Model Evaluation By Indirect Inferencementioning

confidence: 99%

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Evaluation of a DSGE Model of Energy in the United Kingdom Using Stationary Data

Aminu

2017

Comput Econ

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I examine the impact of energy price shock (oil prices shock and gas prices shock) on the economic activities in the United Kingdom using a dynamic stochastic general equilibrium model with a New Keynesian Philips Curve. I decomposed the changes in output caused by all of the stationary structural shocks. I found that the fall in output during the financial crisis period is driven by domestic demand shock, energy prices shock and world demand shock. I found the energy prices shock's contribution to fall in output is temporary. Such that, the UK can borrow against such a temporary fall. This estimated model can create additional input to the policymaker's choice of models.

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Section: Assessing the Fit Of The Estimated Modelsupporting

confidence: 85%

Section: Model Evaluation By Indirect Inferencementioning

confidence: 99%

Evaluation of a DSGE Model of Energy in the United Kingdom Using Stationary Data

Aminu

2017

Comput Econ

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“…In other words, the model is not identified. Canova and Sala (2009) and Le et al (2012) have provided examples of the lack of identification of DSGE models in the New Keynesian model, see also Appendix 1. In response to such concerns various efforts have been made to establish whether various prominent DSGE macro models are identified.…”

Section: Identificationmentioning

confidence: 99%

“…One avenue has been to use the rank condition which tests whether, with no limits on data availability, a DSGE model's parameters can be uniquely discovered -Iskrev (2010), Komunjer and Ng (2011), Qu and Tkachenko (2012). Another avenue is to use indirect inference in the way suggested by Le et al (2017). These two methods establish 'precise' identification -i.e.…”

Section: Identificationmentioning

confidence: 99%

Testing DSGE Models by Indirect Inference: a Survey of Recent Findings

et al. 2019

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We review recent findings in the application of indirect inference to DSGE models. We show that researchers should tailor the power of their test to the model under investigation in order to achieve a balance between high power and finding a robust model; this will involve choosing only a limited number of variables on whose behaviour they should focus. Also recent work reveals that it makes little difference which these variables are or how their behaviour is measured whether via a VAR, IRFs or moments. We also review identification issues, how to test part of a model and whether alternative evaluation methods such as forecasting or likelihood ratio tests are potentially helpful.

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“…Le et al (2013) examined this issue for a three-equation New Keynesian model of the sort being considered here. They found that it was likely to be heavily over-identified.…”

Section: Model Identificationmentioning

confidence: 99%

The role of fiscal policy in Britain's Great Inflation

Fan

Minford

2016

Economic Modelling

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a b s t r a c t a r t i c l e i n f oWe investigate whether the Fiscal Theory of the Price Level (FTPL) can explain UK inflation in the 1970s. We confront the identification problem involved by setting up the FTPL as a structural model for the episode and pitting it against an alternative Orthodox model; the models have a reduced form that is common in form but, because each model is over-identified, numerically distinct. We use indirect inference to test which model could be generating the VECM approximation to the reduced form that we estimate on the data for the episode. Neither model is rejected, though the FTPL model substantially outperforms the Orthodox. But by far the best account of the period assumes that expectations were a probability-weighted combination of the two regimes. Fiscal policy has a substantial role in this weighted model in determining inflation. A similar model accounts for the 1980s but this role of fiscal policy is much diminished.

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A Monte Carlo procedure for checking identification in DSGE models

Cited by 11 publications

References 15 publications

Evaluation of a DSGE Model of Energy in the United Kingdom Using Stationary Data

Evaluation of a DSGE Model of Energy in the United Kingdom Using Stationary Data

Testing DSGE Models by Indirect Inference: a Survey of Recent Findings

The role of fiscal policy in Britain's Great Inflation

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