Federal Reserve Bank of Richmond
Approximating Time Varying Structural Models With Time Invariant Structures
The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identifi cation and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of Gertler and Karadi's (2010) model are studied.
Cite this item
Fabio Canova & Filippo Ferroni & Christian Matthes, Approximating Time Varying Structural Models With Time Invariant Structures, Federal Reserve Bank of Richmond, Working Paper 15-10, 23 Oct 2015.
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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