Antoine and Boldea (2018)
Efficient Estimation with Time-Varying Information and the New Keynesian Phillips Curve
Abstract:
Decades of empirical evidence suggest that many macroeconometric and financial models are subject to both instability and identification problems. In this paper, we address both issues under the unified framework of time-varying information, which includes changes in instrument strength, changes in the second moment of instruments, and changes in the variance of moment conditions. We develop a new estimation method that exploits these changes to increase the efficiency of the estimates of the (stable) structural parameters. As part of our analysis, we also develop a new multivariate estimator for common changes in a system of linear equations. An extensive simulation study shows that our method delivers substantial efficiency gains in finite samples. We estimate a New Keynesian Phillips Curve and obtain more precise estimates of the price indexation and output gap parameters than standard methods.
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