A narrative approach to a fiscal DSGE model

Artikel

Structural DSGE models are used for analyzing both policy and the sources of business cycles. Conclusions based on full structural models are, however, potentially affected by misspecification. A competing method is to use partially identified SVARs based on narrative shocks. This paper asks whether both approaches agree. Specifically, I use narrative data in a DSGE-SVAR that partially identify policy shocks in the VAR and assess the fit of the DSGE model relative to this narrative benchmark. In developing this narrative DSGE-SVAR, I develop a tractable Bayesian approach to proxy VARs and show that such an approach is valid for models with a certain class of Taylor rules. Estimating a DSGE-SVAR based on a standard DSGE model with fiscal rules and narrative data, I find that the DSGE model identification is at odds with the narrative information as measured by the marginal likelihood. I trace this discrepancy to differences in impulse responses, identified historical shocks and policy rules. The results indicate monetary accommodation of fiscal shocks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Quantitative Economics ; ISSN: 1759-7331 ; Volume: 11 ; Year: 2020 ; Issue: 2 ; Pages: 801-837 ; New Haven, CT: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Business Fluctuations; Cycles ; Monetary Policy ; Fiscal Policy
• Subject: Fiscal policy ; monetary policy ; DSGE model ; Bayesian estimation ; narrative shocks ; Bayesian VAR

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Drautzburg, Thorsten
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New Haven, CT
• (when): 2020

Further information

• DOI: doi:10.3982/QE1083
• Handle: http://hdl.handle.net/10419/217202
• Last update: 10.03.2025, 11:44 AM CET