Economics, Econometrics and Finance
4 years ago

DSGE models validated through VAR techniques, predicting news shocks accurately.

VAR Information and the Empirical Validation of DSGE Models
Luca Sala, Luca Gambetti, Mario Forni

Paper Summary

The article explores how to use VAR models to validate DSGE models by measuring how well they capture the effects of specific shocks. The researchers found that a theory of news shocks performed well for most variables but over-predicted the effects on consumption and output.

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