Department of Economics and Business - Universitat Pompeu Fabra

Title:: Identifying the sources of model misspecification
Authors:: Atsushi Inoue, Chun-Hung Kuo and Barbara Rossi
Date:: February 2015 (Revised: June 2018)
Abstract:: 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.
Keywords:: DSGE models, marginal likelihood, misspecification.
Area of Research:: Macroeconomics and International Economics / Statistics, Econometrics and Quantitative Methods

Download the paper in PDF format (487 Kb)

Search Working Papers

By Author:
-enter one surname only or surname and first name separated by a comma and in this order-

By Date:
-when used a value in each of the four fields must be selected-
from (month) from (year) to (month) to (year)

By Keywords:
-separate each keyword or group of keywords by commas-

By JEL code(s):
-separate each code by commas-

By Area:

Predefined Queries