VAR information and the empirical validation of DSGE models

Author / Creator

Forni, Mario author

Available as

Online

Summary

A shock of interest can be recovered, either exactly or with a good approximation, by means of standard VAR techniques even when the structural MA representation is non-invertible. We propose a mea...

A shock of interest can be recovered, either exactly or with a good approximation, by means of standard VAR techniques even when the structural MA representation is non-invertible. We propose a measure of how informative a VAR model is for a specific shock of interest. We show how to use such a measure for the validation of shocks' transmission mechanism of DSGE models through VARs. In an application, we validate a theory of news shocks. The theory does fairly well for all variables, but understates the long-run effects of technology news on TFP.

Show More