Equilibrium nonuniqueness in economic models challenges traditional structural shock recovery methods.
Dynamic stochastic general equilibrium (DSGE) models can have multiple solutions, known as indeterminacy. This study explores how this indeterminacy affects the ability to identify a model's structural shocks using empirical data. The researchers found that indeterminacy does not always lead to non-fundamental representations, and even models with multiple solutions can have a fundamental representation. This means that simply checking for a VAR representation of a DSGE model's equilibria is not enough to determine if the model is indeterminate.