Paper #1479

Títol:

Identifying the sources of model misspecification

Autors:

Atsushi Inoue, Chun-Hung Kuo i Barbara Rossi

Data:

Febrer 2015 (Revisió: Juny 2018)

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

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