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Internal seminars: "Bootstrapping DSGE Models"

30/05/2017 dalle 13:15 alle 14:00

Dove Dipartimento di Scienze Statistiche - Via Belle Arti 41 - Bologna aula III 2° piano

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Relatore
Giovanni Angelini
Research fellow - Dipartimento di Scienze Statistiche Bologna


Abstract:
This paper explores the potential of bootstrap methods in the empirical evaluation of dynamic stochastic general equilibrium (DSGE) models and, more generally, in linear rational expectations models featuring unobservable (latent) components. We consider two dimensions. First, we provide mild regularity conditions that suffice for the bootstrap Quasi-Maximum Likelihood (QML) estimator of the structural parameters to mimic the asymptotic distribution of the QML estimator. Consistency of the bootstrap allows keeping the probability of false rejections of the cross-equation restrictions under control. Second, we show that the realizations of the bootstrap estimator of the structural parameters can be constructively used to build a novel, computationally straightforward tests for model misspecification, including the case of weak identification. In particular, we show that under strong identification and bootstrap consistency, a test statistic based on a set of realizations of the bootstrap QML estimator approximates the Gaussian distribution. Instead, when the regularity conditions for inference do not hold as e.g. it happens when (part of) the structural parameters are weakly identified, the above result is no longer valid. Therefore, we can evaluate how close or distant is the estimated model from the case of strong identification. Our Monte Carlo experimentations suggest that the bootstrap plays an important role along both dimensions and represents a promising evaluation tool of the cross-equation restrictions and, under certain conditions, of the strength of identification. An empirical illustration based on a small-scale DSGE model estimated on U.S. quarterly observations shows the practical usefulness of our approach.

Organizzatori
Alessandra Luati
Silvia Cagnone