Mind the Gap! Stylized Dynamic Facts and Structural Models.
- American Economic Journal: Macroeconomics (Forthcoming)
We study what happens to identified shocks and to dynamic responses when the data generating process features q disturbances
but q1 < q variables are used in an empirical model. Identified shocks are linear combinations of current and past values of
all structural disturbances and do not necessarily combine disturbances of the same type. Theory-based restrictions may be insufficient to obtain structural dynamics. We revisit the evidence regarding the transmission of house price and of uncertainty shocks. We provide suggestions on how to compare the dynamics of larger
scale DSGEs models with smaller scale VARs.
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