A1298
Title: Is time an illusion? A bootstrap likelihood ratio test for shock transmission delays in DSGE models
Authors: Marco Maria Sorge - University of Salerno (Italy) [presenting]
Luca Fanelli - University of Bologna (Italy)
Giovanni Angelini - University of Bologna (Italy)
Abstract: Several business cycle models exhibit a recursive timing structure, which enforces delayed propagation of exogenous shocks driving short-run dynamics. A bootstrap-based empirical strategy is suggested to test for the relevance of timing restrictions and ensuing shock transmission delays in DSGE environments. In the presence of strong identification, the capability of likelihood-based tests in bootstrap resamples to empirically assess short-run restrictions placed by informational structures on a given model's equilibrium representation is documented, thereby enhancing the coherence between theory and measurement. The size properties of the procedure are evaluated in short time series by conducting several numerical experiments on a popular New Keynesian model of the monetary transmission mechanism. An application to U.S. quarterly data from the Great Moderation lends support to the conventional (unrestricted) timing protocol, whereby inflation and output gap do respond on impact to monetary policy innovations.
