We derive necessary and sufficient conditions under which a set of variables is informationally sufficient, i.e. it contains enough information to estimate the structural shocks with a VAR model. Based on such conditions, we suggest a procedure to test for informational sufficiency. Moreover, we...

Using a dynamic factor model that allows for changes in both the long- run growth rate of output and the volatility of business cycles, we document a significant decline in long-run output growth in the United States. Our evidence supports the view that this slowdown started prior to the Great...

One of the leading methods of estimating the structural parameters of DSGE models is the VAR-based impulse response matching estimator. The existing asymptotic theory for this estimator does not cover situations in which the number of impulse response parameters exceeds the number of VAR model...

In a situation where agents can only observe a noisy signal of the shock to future economic fundamentals, SVAR models can still be successfully employed to estimate the shock and the associated impulse response functions. Identification is reached by means of dynamic rotations of the reduced...

In this paper, we formulate a statistical model of inflation that combines data on survey expectations and the inflation target set by central banks.. Our model produces inflation forecasts that are aligned with survey expectations, thereby integrating the predictive power of the survey...

We introduce a frequency domain version of the EM algorithm for general dynamic factor models. We consider both AR and ARMA processes, for which we develop iterative indirect inference procedures analogous to the algorithms in Hannan (1969). Although our proposed procedure allows researchers to...

We ask whether cuts of government consumption lower or raise the sovereign default premium. To address this question, we set up a new data set for 38 emerging and advanced economies which contains quarterly time-series observations for sovereign default premia, government consumption, and...

We generalise the spectral EM algorithm for dynamic factor models in Fiorentini, Galesi and Sentana (2014) to bifactor models with pervasive global factors complemented by regional ones. We exploit the sparsity of the loading matrices so that researchers can estimate those models by maximum...

Yes, it makes a lot of sense. Using the Smets and Wouters (2007) model of the U.S. economy, we find that the role of the output gap should be equal to or even more important than that of inflation when designing a simple loss function to represent household welfare. Moreover, we document that a...

Using Monte Carlo experiments, we examine the performance of indirect inference tests of DSGE models in small samples, using various models in widespread use. We compare these with tests based on direct inference (using the Likelihood Ratio). We find that both tests have power so that a...