The Great Recession seems to be a natural experiment for economic analysis, in that it has shown the inadequacy of the predominant theoretical framework — the New Neoclassical Synthesis (NNS) — grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a m...

Tractable Latent State Filtering for Non-Linear DSGE Models Using a Second-Order Approximation* This paper develops a novel approach for estimating latent state variables of Dynamic Stochastic General Equilibrium (DSGE) models that are solved using a second-order accurate approximation. I apply the Kalman filter to a statespace representation of the second-order solution based on the ‘pruning’ ...

This paper reconsiders the developments of model evaluation in macroeconometrics over the last forty years. Our analysis starts from the failure of Cowles foundation models. The different diagnosis of this failure are then analyzed to classify them in two groups: explanations related to problems in the theoretical models that lead to problems in the identification of the relevant econometric mo...

s of research papers produced by the economists at the Philadelphia Fed Research Rap You can find more Research Rap abstracts on our website at: www.philadelphiafed.org/research-and-data/ publications/research-rap/. Or view our working papers at: www.philadelphiafed.org/research-and-data/ publications/. SUPPLY-SIDE POLICIES, LOW AGGREGATE DEMAND, AND THE ZERO LOWER BOUND This paper examines how...

Abstract. This paper exploits information from the term structure of survey expectations to identify news shocks in a a DSGE model with rational expectations. We estimate a structural business-cycle model with price and wage stickiness. We allow for both unanticipated and anticipated components (“news”) in each structural disturbance: neutral and investment-specific technology shocks, governmen...

This paper considers issues related to identification, inference, and computation in linearized dynamic stochastic general equilibrium (DSGE) models. We first provide a necessary and sufficient condition for the local identification of the structural parameters based on the (first and) second order properties of the process. The condition allows for arbitrary relations between the number of obs...

The relation between macroeconomic fundamentals and the cross section of asset returns is studied through the lens of dynamic stochastic general equilibrium (DSGE) models. We provide a full-information Bayesian estimation of the model using seven macroeconomic variables and extract the time series of three fundamental shocks to the economy for the period of 1966Q1-2010Q3: neutral technology (NT...

This paper studies the state-dependence of the output and welfare effects of shocks to government purchases in a canonical medium scale DSGE model. When monetary policy is characterized by a Taylor rule, the output multiplier (the change in output for a one unit change in government spending) is countercyclical but close to constant across states of the business cycle, whereas the welfare multi...