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Non-uniqueness of deep parameters and shocks in estimated DSGE models: a health warning

Abstract

Estimation of dynamic stochastic general equilibrium (DSGE)models using state space methods implies vector autoregressive moving average (VARMA)representations of the observables. Following Lippi and Reichlin’s (1994)analysis of nonfundamentalness, this note highlights the potential dangers of end of non-uniqueness, both of estimates of deep parameters and of structural innovations

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