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I'm trying to understand how the solutions of a DSGE model can be seen as VAR or VARMA.

Can you give examples of DSGE model solutions which can be seen as such? Also, does this only happen when we use linear methods, or also with non-linear methods?

Any help would be appreciated.

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  • $\begingroup$ "The only interesting question with regard to DSGE is institutional: why are these scientific failures still around and have not been thrown out of academia long ago? Who finances and sponsors and promotes this senseless production of proto-scientific garbage?" — bondeconomics.com/2019/03/… $\endgroup$ – aliteralmind May 11 at 12:40
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After much reading, here's the conclusion I got.

VAR models can be seen as State-Space models/representations.

Usually DSGE linearised solutions have a State-Space representation, with more restrictions than a regular VAR model would have. In fact, there are papers(I remember one from spanos testing the Smets and Wouters model) showing DSGE solutions don't pass the specification tests we usually do to the data.

For example, instead of assuming that the residuals follow a normal multivariate distribution, they show we would be better to assume a student-t multivariate distribution. Of course, the problem is that most textbooks dealing with multivariate time series - if I remember correctly lutkephöl is one of them - also assume normal distributions. But at least, the time series VAR analysis can be made robust, while I've never seen DSGE model estimations using student-t distributions instead of normal ones.

P.S.: this is more like a note to self, from my self studying the subject. If anyone knows more, be free to share.

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  • $\begingroup$ HI: I'm not famillar with DSGE's but the document at link below contrasts VAR's and structural models in a clear way. Maybe it can shed some light on what you're looking at. Good luck. kansascityfed.org/ZeYVN/publicat/reswkpap/pdf/RWP84-10.pdf $\endgroup$ – mark leeds May 31 '18 at 21:42
  • $\begingroup$ @markleeds hi Mark, welcome to the site. :) Thanks for the link. $\endgroup$ – An old man in the sea. Jun 1 '18 at 17:45
  • $\begingroup$ Hi: I saw your question about Sim's paper. I've been wanting to understand how to solve Ratonal Expectations models in the general case also. Unfortunately, I don';t have time to read that paper right now. Harold Uhlig also has a methodology and publication which explains details.. Hopefully one of the wizards can answer your question. Good to meet you. $\endgroup$ – mark leeds Jun 1 '18 at 17:56

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