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DSGE Models with Observation-Driven Time-Varying parameters

Author

Listed:
  • Giovanni Angelini

    (University of Bologna, Italy)

  • Paolo Gorgi

    (VU Amsterdam, The Netherlands)

Abstract

This paper proposes a novel approach to introduce time-variation in structural parameters of DSGE models. Structural parameters are allowed to evolve over time via an observation-driven updating equation. The estimation of the resulting DSGE model can be easily performed by maximum likelihood without the need of time-consuming simulation-based methods. An application to a DSGE model with time varying volatility for structural shocks is presented. The results indicate a significant improvement in forecasting performance.

Suggested Citation

  • Giovanni Angelini & Paolo Gorgi, 2018. "DSGE Models with Observation-Driven Time-Varying parameters," Tinbergen Institute Discussion Papers 18-030/III, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20180030
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    File URL: https://papers.tinbergen.nl/18030.pdf
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    References listed on IDEAS

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    13. Schwaab, Bernd, 2017. "Bank business models at negative interest rates," Research Bulletin, European Central Bank, vol. 40.
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    18. repec:ecb:ecbrbu:2017:0040:1 is not listed on IDEAS
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    Cited by:

    1. Giacomo Bormetti & Fulvio Corsi, 2021. "A Lucas Critique Compliant SVAR model with Observation-driven Time-varying Parameters," Papers 2107.05263, arXiv.org, revised Feb 2022.
    2. Eric A. Beutner & Yicong Lin & Andre Lucas, 2023. "Consistency, distributional convergence, and optimality of score-driven filters," Tinbergen Institute Discussion Papers 23-051/III, Tinbergen Institute.

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    More about this item

    Keywords

    DSGE models; score-driven models; time-varying parameters;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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