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Identification Using Stability Restrictions

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  • Leandro M. Magnusson
  • Sophocles Mavroeidis

Abstract

This paper studies inference in models that are identified by moment restrictions. We show how instability of the moments can be used constructively to improve the identification of structural parameters that are stable over time. A leading example is macroeconomic models that are immune to the well‐known (Lucas (1976)) critique in the face of policy regime shifts. This insight is used to develop novel econometric methods that extend the widely used generalized method of moments (GMM). The proposed methods yield improved inference on the parameters of the new Keynesian Phillips curve.

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  • Leandro M. Magnusson & Sophocles Mavroeidis, 2014. "Identification Using Stability Restrictions," Econometrica, Econometric Society, vol. 82(5), pages 1799-1851, September.
    • Handle: RePEc:wly:emetrp:v:82:y:2014:i:5:p:1799-1851
    DOI: 10.3982/ECTA9612
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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