DSGE Models with observation-driven time-varying volatility

Abstract

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Non-Gaussian score-driven conditionally heteroskedastic models with a macroeconomic application

“…The heteroskedastic t-ABCD representation is a generalization of the homoskedastic Gaussian-ABCD representation of Fernández-Villaverde et al (2007) and the heteroskedastic score-driven Gaussian-ABCD representation of Angelini and Gorgi (2018). By assuming that t = and ν → ∞, we get the homoskedastic Gaussian-ABCD representation [Fernández-Villaverde et al (2007)].…”

“…Moreover, by assuming that t = , we get the new homoskedastic t-ABCD representation. In addition, we note that we provide the following contributions to the work of Angelini and Gorgi ( 2018): (i) Angelini and Gorgi (2018) assume that only the scale filter is score-driven. We use score-driven transition equation and scale filters.…”

“…We use score-driven transition equation and scale filters. (ii) Angelini and Gorgi (2018) use a score-driven multivariate Gaussian distribution, which we extend to the score-driven multivariate t-distribution. (iii) We extend the score-driven scale filter of Angelini and Gorgi (2018) by adding asymmetric effects to the updates.…”

“…We use the heteroskedastic t-QVAR model to estimate a heteroskedastic score-driven t-ABCD representation of the DSGE model of An and Schorfheide (2007). The t-ABCD representation is an extension of the Gaussian-ABCD representation [Fernández-Villaverde et al (2007)] and the heteroskedastic score-driven Gaussian-ABCD representation [Angelini and Gorgi (2018)]. We report results by using data on economic output, inflation, interest rate, government spending, aggregate productivity, and consumption of the USA for the period of 1954 Q3 to 2022 Q1.…”

A Lucas Critique Compliant SVAR model with Observation-driven Time-varying Parameters

“…Hence, with respect to competitor PD models, the SD approach will benefit from the ease of estimation of the low dimensional vector of fix parameters. Due to these computational advantages, SD dynamics has been already employed in macroe- 2021), Angelini and Gorgi (2018), Blazsek et al (2019), Gorgi et al (2021). However, none of these works considers the problem of the identification of structural shocks and the theoretical properties of the OD models in relation to the Lucas Critique.…”