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PRACTICAL TOOLS FOR POLICY ANALYSIS IN DSGE MODELS WITH MISSING SHOCKS
Author(s) -
Caldara Dario,
Harrison Richard,
Lipińska Anna
Publication year - 2014
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2409
Subject(s) - dynamic stochastic general equilibrium , proxy (statistics) , econometrics , bayesian probability , economics , impulse response , matching (statistics) , baseline (sea) , set (abstract data type) , computer science , monetary policy , macroeconomics , statistics , mathematics , mathematical analysis , oceanography , machine learning , artificial intelligence , geology , programming language
SUMMARY In this paper we analyze the propagation of shocks originating in sectors that are not present in a baseline dynamic stochastic general equilibrium (DSGE) model. Specifically, we proxy the missing sector through a small set of factors that feed into the structural shocks of the DSGE model to create correlated disturbances. We estimate the factor structure by either matching impulse responses of the augmented DSGE model to those generated by an auxiliary model or by using Bayesian techniques. We apply this methodology to track the effects of oil shocks and housing demand shocks in models without energy or housing sectors. Copyright © 2014 John Wiley & Sons, Ltd.