The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications

• Autores: Martin M. Andreasen, Jesús Fernández-Villaverde, Juan F. Rubio Ramírez
• Localización: Review of economic studies, ISSN 0034-6527, Vol. 85, Nº 1, 2018, págs. 1-49
• Idioma: inglés
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• Dialnet Métricas: 1 Cita
• Resumen

  • This article studies the pruned state-space system for higher-order perturbation approximations to dynamic stochastic general equilibrium (DSGE) models. We show the stability of the pruned approximation up to third order and provide closed-form expressions for first and second unconditional moments and impulse response functions. Our results introduce generalized method of moments (GMM) estimation and impulse-response matching for DSGE models approximated up to third order and provide a foundation for indirect inference and simulated method of moments (SMM). As an application,we consider a New Keynesian model with Epstein–Zin preferences and two novel feedback effects from long-term bonds to the real economy, allowing us to match the level and variability of the 10-year term premium in the U.S. with a low relative risk aversion of 5.