Identifying the sources of model misspecification

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  • dc.contributor.author Inoue, Atsushica
  • dc.contributor.author Kuo, Chun-Hungca
  • dc.contributor.author Rossi, Barbara, 1971-ca
  • dc.date.accessioned 2016-04-28T12:07:20Z
  • dc.date.available 2016-04-28T12:07:20Z
  • dc.date.issued 2014-09
  • dc.description.abstract In this paper we propose empirical methods for detecting and identifying misspecifications in DSGE models. We introduce wedges in a DSGE model and identify potential misspecification via forecast error variance decomposition (FEVD) and marginal likelihood analyses. Our simulation results based on a small-scale DSGE model demonstrate that our method can correctly identify the source of misspecification. Our empirical results show that the medium-scale New Keynesian DSGE model that incorporates features in the recent empirical macro literature is still very much misspecified; our analysis highlights that the asset and labor markets may be the source of the misspecification.ca
  • dc.description.sponsorship The first and third authors acknowledge financial support from the National Science Foundation through grants 102159 and 1022125, respectively.
  • dc.format.mimetype application/pdfca
  • dc.identifier.uri http://hdl.handle.net/10230/26216
  • dc.language.iso engca
  • dc.publisher Centre for Economic Policy Researchca
  • dc.relation.ispartofseries CEPR Discussion Paper Series; 10140
  • dc.relation.projectID info:eu-repo/grantAgreement/EC/FP7/615608
  • dc.rights Original publication is available at CEPR at http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10140ca
  • dc.rights.accessRights info:eu-repo/semantics/openAccessca
  • dc.subject.keyword DSGE models
  • dc.subject.keyword Empirical macroeconomics and model misspecification
  • dc.title Identifying the sources of model misspecificationca
  • dc.type info:eu-repo/semantics/workingPaperca