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Testing for parameter stability in DSGE models. The cases of France, Germany, Italy, and Spain

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Abstract

We estimate a New Keynesian DSGE model on French, German, Italian, and Spanish data. The main aim of this paper is to check for the respective sets of parameters that are stable over time, making use of the ESS procedure (“Estimate of Set of Stable parameters”) developed by Inoue and Rossi (Rev Econ Stat 93(4):1186–1204, 2011). This new econometric technique allows to address the stability properties of each single parameter in a DSGE model separately. In the case of France, Germany, and Italy our results point to structural breaks after the beginning of the second stage of EMU in the mid-nineties, while the estimates for Spain show a significant break just before the start of the third stage in 1998. Specifically, there are significant changes in monetary policy behavior for France, Italy, and Spain, while monetary policy in Germany seems to be stable over time.

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Notes

  1. Therefore, we implement Christopher Sims’ hybrid optimization algorithm “csminwel”, which combines the derivative-based BFGS method with a simplex algorithm. The “csminwel” program is available at http://sims.princeton.edu/yftp/optimize/.

  2. To facilitate the process of parameter estimation, we follow DeJong and Dave (2007, Chapter 11.2.5) and perform further data alignment by scaling the filtered series using their (relative) means.

  3. For a more detailed description of the methodology, including a formal description of the algorithm and proofs, we refer to Inoue and Rossi (2011) as well as to their not-for-publication appendix; see http://econ.duke.edu/~brossi/NotforPublicationAppendixInoueRossi2009.pdf.

  4. A full set of the test statistics is available from the authors upon request.

  5. We cannot rule out a test bias due to the treatment of re-unification outlined in Section 3.

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Authors and Affiliations

  1. University of Regensburg and Institute for East and Southeast European Studies, Landshuter Str. 4, 93047, Regensburg, Germany

    Jürgen Jerger

  2. University of Regensburg, Universitätsstr. 31, 93053, Regensburg, Germany

    Oke Röhe

Authors
  1. Jürgen Jerger
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  2. Oke Röhe
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Corresponding author

Correspondence to Oke Röhe.

Additional information

We are grateful for comments from David N. DeJong, the help with the estimation programs provided by Peter N. Ireland, the provision of the ESS code by Barbara Rossi, as well as the conference and seminar feedback from Bratislava, Kiel, Muenster, and Regensburg. Special thanks are due to two anonymous referees for their helpful comments and suggestions.

Appendix:

Appendix:

All data have been retrieved from Thomson Reuters Datastream. The original sources are detailed below.

  • France:

    Real personal consumption: EUROSTAT

    Gross fixed capital formation: EUROSTAT

    Money balances (M3): Banque de France

    Consumer price index: OECD

    Interest rate (Pibor): OECD

    Population: National Institute for Statistics and Economic Studies (INSEE)

  • Germany:

    Real personal consumption: Federal Statistics Office

    Gross fixed capital formation: Federal Statistical Office

    Money balances (M3): Deutsche Bundesbank

    Consumer price index: OECD

    Interest rate (Fibor): OECD

    Population: Federal Statistical Office

  • Italy:

    Real personal consumption: Oxford Economics

    Gross fixed capital formation: Oxford Economics

    Money balances (M3): Oxford Economics

    Consumer price index: Oxford Economics

    Interest rate (three-month money market rate): Oxford Economics

    Population: Oxford Economics

  • Spain:

    Real personal consumption: EUROSTAT

    Gross fixed capital formation: EUROSTAT

    Money balances (M3): Banco de España

    Consumer price index: OECD

    Interest rate (three-month money market rate): OECD

    Population: EUROSTAT

Table 2 Maximum likelihood estimates: France
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Table 3 Maximum likelihood estimates: Germany
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Table 4 Maximum likelihood estimates: Italy
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Table 5 Maximum likelihood estimates: Spain
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Table 6 The table shows the p-values of Andrews’ (1993) QLR test on individual parameters for France
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Table 7 The table shows the p-values of Andrews’ (1993) QLR test on individual parameters for Germany
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Table 8 The table shows the p-values of Andrews’ (1993) QLR test on individual parameters for Italy
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Table 9 The table shows the p-values of Andrews’ (1993) QLR test on individual parameters for Spain
Full size table

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Jerger, J., Röhe, O. Testing for parameter stability in DSGE models. The cases of France, Germany, Italy, and Spain. Int Econ Econ Policy 11, 329–351 (2014). https://doi.org/10.1007/s10368-012-0228-1

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