Identification versus misspecification in New Keynesian monetary policy models

In this paper, we study identification and misspecification problems in standard closed and open-economy empirical New-Keynesian DSGE models used in monetary policy analysis. We find that problems with model misspecification still appear to be a first-order issue in monetary DSGE models, and argue that it is problems with model misspecification that may benefit the most from moving from a classical to a Bayesian framework. We also argue that lack of identification should neither be ignored nor be assumed to affect all DSGE models. Fortunately, identification problems can be readily assessed on a case-by- case basis, by applying recently developed pre-tests of identification.

ADOLFSON Malin;  LASÉEN Stefan;  LINDÉ Jesper;  RATTO Marco; 

2019-02-04

ELSEVIER SCIENCE BV

JRC105530

0014-2921 (online),   

https://www.sciencedirect.com/science/article/pii/S0014292119300078?via%3Dihub,    https://publications.jrc.ec.europa.eu/repository/handle/JRC105530,   

10.1016/j.euroecorev.2018.12.010 (online),