City Research Online

Abstract

We study the ability of SVARs to match impulse responses of a well‐established DSGE model where the information of agents can be imperfect. We derive conditions for the solution of a linearized NK‐DSGE model to be invertible given this information set. In the absence of invertibility, an approximate measure is constructed. An SVAR is estimated using artificial data generated from the model and three forms of identification restrictions: zero, sign and bounds on the forecast error variance. We demonstrate that a VAR may not recover a subset of structural shocks when imperfect information causes the underlying model to be non‐invertible.

Publication Type:	Article
Additional Information:	© 2025 The Author(s). Oxford Bulletin of Economics and Statistics published by Oxford University and John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords:	imperfect information, impulse responses, invertibility-fundamentalness, SVAR-DSGE comparisons, validation of DSGE models
Subjects:	H Social Sciences > HB Economic Theory
Departments:	School of Policy & Global Affairs School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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