This paper proposes a novel approach to introduce time-variation in the variances of the structural shocks of DSGE models. The variances are allowed to evolve over time via an observation-driven updating equation. The estimation of the resulting DSGE model can be easily performed by maximum likelihood without the need of time-consuming simulation-based methods. An empirical application to a DSGE model with time-varying volatility for structural shocks shows a significant improvement in the accuracy of density forecasts.
Angelini G., Gorgi P. (2018). DSGE Models with observation-driven time-varying volatility. ECONOMICS LETTERS, 171, 169-171 [10.1016/j.econlet.2018.07.023].
DSGE Models with observation-driven time-varying volatility
Angelini G.
;
2018
Abstract
This paper proposes a novel approach to introduce time-variation in the variances of the structural shocks of DSGE models. The variances are allowed to evolve over time via an observation-driven updating equation. The estimation of the resulting DSGE model can be easily performed by maximum likelihood without the need of time-consuming simulation-based methods. An empirical application to a DSGE model with time-varying volatility for structural shocks shows a significant improvement in the accuracy of density forecasts.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
