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Evaluation of dynamic stochastic general equilibrium models based on distributional comparison of simulated and historical data

Corradi, V and Swanson, NR (2007) Evaluation of dynamic stochastic general equilibrium models based on distributional comparison of simulated and historical data Journal of Econometrics, 136 (2). pp. 699-723.

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Abstract

We take as a starting point the existence of a joint distribution implied by different dynamic stochastic general equilibrium (DSGE) models, all of which are potentially misspecified. Our objective is to compare "true" joint distributions with ones generated by given DSGEs. This is accomplished via comparison of the empirical joint distributions (or confidence intervals) of historical and simulated time series. The tool draws on recent advances in the theory of the bootstrap, Kolmogorov type testing, and other work on the evaluation of DSGEs, aimed at comparing the second order properties of historical and simulated time series. We begin by fixing a given model as the "benchmark" model, against which all "alternative" models are to be compared. We then test whether at least one of the alternative models provides a more "accurate" approximation to the true cumulative distribution than does the benchmark model, where accuracy is measured in terms of distributional square error. Bootstrap critical values are discussed, and an illustrative example is given, in which it is shown that alternative versions of a standard DSGE model in which calibrated parameters are allowed to vary slightly perform equally well. On the other hand, there are stark differences between models when the shocks driving the models are assigned non-plausible variances and/or distributional assumptions. © 2005 Elsevier B.V. All rights reserved.

Item Type: Article
Authors :
NameEmailORCID
Corradi, Vv.corradi@surrey.ac.ukUNSPECIFIED
Swanson, NRUNSPECIFIEDUNSPECIFIED
Date : 1 February 2007
Identification Number : https://doi.org/10.1016/j.jeconom.2005.11.010
Depositing User : Symplectic Elements
Date Deposited : 16 May 2017 15:27
Last Modified : 17 May 2017 14:35
URI: http://epubs.surrey.ac.uk/id/eprint/819748

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