Information Criteria for Impulse Response Function Matching Estimation of DSGE Models
Alastair Hall, Atsushi Inoue, James M. Nason, and Barbara Rossi
Working Paper 2007-10b
Revised October 2008
We propose a new information criterion for impulse response function matching estimators (IRFMEs) of the structural parameters of dynamic stochastic general equilibrium (DSGE) macroeconomic models. An advantage of our procedure is that it allows researchers to select the impulse responses that are most informative about DSGE model parameters and ignore the rest. The idea of tossing out superfluous impulse responses motivates our Redundant Impulse Response Selection Criterion (RIRSC). The RIRSC is general enough to apply to impulse responses estimated by VARs, local projections, and simulation methods. We show that our criterion significantly affects estimates and inference about key parameters of two well-known New Keynesian DSGE models. Monte Carlo evidence indicates that the RIRSC yields gains in terms of finite sample bias as well as offering tests statistics whose behavior is better approximated by first order asymptotic theory. Thus, RIRSC improves on existing methods used to implement IRFMEs.
JEL classification: C32, E47, C52, C53
Key words: impulse response function, matching estimator, redundant selection criterion
The authors thank Craig Burnside for sharing his codes and for many useful suggestions along the way. They also thank L. Christiano for making the Altig, Christiano, Eichenbaum, and Linde (2005) codes available in his webpage. We gratefully acknowledge comments from Jean Boivin, Jeff Campbell, Peter R. Hansen, Oscar Jorda, Jesper Linde, Sophocles Mavroedis, Frank Schorfheide, and seminar participants at the 2006 EC2 Conference, the EMSG at Duke University, the UBC Macro Lunch Group, the 2007 Conference on the Macroeconomics of Technology Shocks in Waterloo, the 2007 ESSM, the 2007 SED Conference, Kyoto University, Osaka University, Brown University, and University of Cincinnati. Atsushi Inoue acknowledges financial support by the SSHRC under project 410-2007-1975. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve System, the Office of the Comptroller of the Currency, or the U.S. Treasury Department. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Alastair Hall, Manchester University, Economics Department, School of Social Sciences, Manchester, United Kingdom M13 9PL, email@example.com; Atsushi Inoue, Department of Agricultural and Resource Economics, North Carolina State University, Campus Box 8109, Raleigh, NC 27695-8109, 919-515-5969, firstname.lastname@example.org; James M. Nason, Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street, N.E., Atlanta, GA 30309, email@example.com; or Barbara Rossi, Duke University, Department of Economics, 204 Social Science Building, Durham, NC 27708, firstname.lastname@example.org.
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