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On the Validity of Classical and Bayesian DSGE-Based Inference
This paper studies large sample classical and Bayesian inference in a prototypical linear DSGE model and demonstrates that inference on the structural parameters based on a Gaussian likelihood is unaffected by departures from Gaussianity of the structural shocks. This surprising result is due to a cancellation in the asymptotic variance resulting into a generalized information equality for the block corresponding to the structural parameters. The underlying reason for the cancellation is the certainty equivalence property of the linear rational expectation model.The main implication of this ...