Critically Assessing Estimated DSGE Models: A Case Study of a Multi‐sector Model

We describe methods for assessing estimated dynamic stochastic general equilibrium (DSGE) models. One involves the computation of alternative impulse responses from models constrained to have an identical likelihood and the same contemporaneous signs as responses in the DSGE model. Others ask how we...

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Bibliographic Details
Published in:The Economic record 2018-12, Vol.94 (307), p.349-371
Main Authors: Liu, Xianglong, Pagan, Adrian R., Robinson, Tim
Format: Article
Language:English
Subjects:
Economic models
Measurement
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Summary:We describe methods for assessing estimated dynamic stochastic general equilibrium (DSGE) models. One involves the computation of alternative impulse responses from models constrained to have an identical likelihood and the same contemporaneous signs as responses in the DSGE model. Others ask how well the model matches the data‐generating process; whether there is weak identification; the consequences of including measurement error with growth rates of non‐stationary variables; and whether the model can reproduce features of the data that involve combinations of moments. The methods are applied to a large‐scale small‐open economy DSGE model, typical of those used at policy institutions.
ISSN:0013-0249
1475-4932
DOI:10.1111/1475-4932.12425