Unveiling the Hidden Risks of Unidentified Structural Shocks in Economic Models
DSGE models are important for policymakers, but they can give conflicting advice if not properly identified. This study adapts a theory from another type of model to help identify structural shocks in DSGE models. By applying this theory to a simple business cycle model, the researchers found that lack of identification can lead to different policy recommendations. Identifying structural shocks in DSGE models is crucial for making accurate policy decisions.