Discussion paper

DP11178 VAR Information and the Empirical Validation of DSGE Models

A shock of interest can be recovered, either exactly or with a good approximation, by
means of standard VAR techniques even when the structural MA representation is non-
invertible. We propose a measure of how informative a VAR model
is for a specific shock of interest. We show how to use such a measure for the validation
of shocks' transmission mechanism of DSGE models through VARs. In an application, we
validate a theory of news shocks. The theory does fairly well for all variables, but
understates the long-run effects of technology news on TFP.

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Citation

Forni, M, L Gambetti and L Sala (2016), ‘DP11178 VAR Information and the Empirical Validation of DSGE Models‘, CEPR Discussion Paper No. 11178. CEPR Press, Paris & London. https://cepr.org/publications/dp11178