Paper #1479

Títol:

Identifying the sources of model misspecification

Autors:

Atsushi Inoue, Chun-Hung Kuo i Barbara Rossi

Data:

Febrer 2015

Resum:

In this paper we propose an empirical method for detecting and identifying misspecification in structural economic models. Our approach formalizes the common practice of adding �shocks� in the model, and identifies potential misspecification via forecast error variance decomposition and marginal likelihood analyses. The simulation results based on a small-scale DSGE model demonstrate that our method can correctly identify the source of misspecification. Our empirical results show that state-of-the-art medium-scale New Keynesian DSGE models remain misspecified, pointing to asset and labor markets as the sources of the misspecification.

Paraules clau:

DSGE models, marginal likelihood, misspecification.

Àrea de Recerca:

Macroeconomia i Economia Internacional / Estadística, Econometria i Mètodes Quantitatius

Descarregar el paper en format PDF