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Home | Events Archive | Using Structural and Nonstructural Shocks in the Estimation of DSGE Models

Using Structural and Nonstructural Shocks in the Estimation of DSGE Models

  • Series
    Econometrics Seminars and Workshop Series
  • Speaker(s)
    Fabio Canova (BI Norwegian Business School, Norway)
  • Field
  • Location
    University of Amsterdam, Roeterseilandcampus, room E0.22
  • Date and time

    February 24, 2023
    12:30 - 13:30

Dynamic Stochastic General Equilibrium (DSGE) models are typically singular. Thus, for likelihood-based structural parameters estimation, one needs to select the variables to use or add artificial disturbances to remove the singularity. Alternatively, one could use a composite likelihood of non -singular models. I compare various estimation approaches, provide conditions for the additional shocks to remove singularity, study shock identification and parameter estimates distortions; and reexamine the sources of macroeconomic fluctuations. Adding shocks may be counterproductive. A composite likelihood approach minimizes the distortions. The importance of monetary shocks for inflation is likely to be underestimated; TFP shocks are driving output fluctuations.

Link to paper.