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Minimum Distance Estimation and Testing of DSGE Models from Structural VARs* |
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| Authors: | Patrick Fève Julien Matheron Jean‐Guillaume Sahuc |
| Affiliation: | 1. Toulouse School of Economics (GREMAQ and IDEI) and IUF, Manufacture des Tabacs, Aile J.J. Lafont, bat. F, 21 allée de Brienne, 31000 Toulouse, and Banque de France, DGEI–DEMFI, Paris, France (e‐mail: patrick.feve@univ‐tlse1.fr);2. Banque de France, DGEI–DEMS–SEPS, 31 rue croix des petits champs, 75049 Paris Cedex 1, France (e‐mail: julien.matheron@banque‐france.fr);3. Audencia School of Management, Nantes, France (e‐mail: jean‐guillaume.sahuc@banque‐france.fr) |
| Abstract: | The aim of this paper is to complement the minimum distance estimation–structural vector autoregression approach when the weighting matrix is not optimal. In empirical studies, this choice is motivated by stochastic singularity or collinearity problems associated with the covariance matrix of impulse response functions. Consequently, the asymptotic distribution cannot be used to test the economic model's fit. To circumvent this difficulty, we propose a simple simulation method to construct critical values for the test statistics. An empirical application with US data illustrates the proposed method. |
| Keywords: | C15 C32 E32 |