The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications
NBER Working Paper No. 18983
This paper studies the pruned state-space system for higher-order approximations to the solutions of DSGE models. For second- and third-order approximations, we derive the statistical properties of this system and provide closed-form expressions for first and second unconditional moments and impulse response functions. Thus, our analysis introduces GMM estimation for DSGE models approximated up to third-order and provides the foundation for indirect inference and SMM when simulation is required. We illustrate the usefulness of our approach by estimating a New Keynesian model with habits and Epstein-Zin preferences by GMM when using first and second unconditional moments of macroeconomic and financial data and by SMM when using additional third and fourth unconditional moments and non-Gaussian innovations.
Document Object Identifier (DOI): 10.3386/w18983
Published: The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications Martin M Andreasen Jesús Fernández-Villaverde Juan F Rubio-Ramírez The Review of Economic Studies, Volume 85, Issue 1, 1 January 2018, Pages 1–49, https://doi.org/10.1093/restud/rdx037 citation courtesy of
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