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Marco Lippi, Einaudi Institute for Economics and Finance Print
Tuesday, 11 December 2018, 14:00 - 15:15

Joint with the Econometrics and Statistics seminar series

Marco Lippi, Einaudi Institute for Economics and Finance 

Aggregation and Fundamentalness in DSGE, VAR and Dynamic Factor Models 

Abstract: I argue that in DSGE, VAR and Dynamic Factor Models, the number of shocks is crucial. I show that if that number is not correctly specified, or if measurement error are present, the resulting estimated shocks can be corrupted, e.g. mixing demand and supply structural shocks. In DSGE models the number of shocks is determined by the underlying economic theory. In VAR models the number of shocks is determined by the number of variables included. In Dynamic Factor Models consistent data-based criteria are available to determine the number of shocks. I argue that the latter should be taken as a benchmark in the analysis of macroeconomic time series. 

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Location: R42.2.113
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