Many macroeconometric models are built to understand business cycles. However, the methods applied to assess them are rarely of the form that one learns whether they provide a good explanation of cycle characteristics. In this paper we review and apply techniques that do this for models with...

In the wake of the global financial crisis a considerable amount of research has focused on integrating financial factors into macroeconomic models. Two common approaches for doing so include the financial accelerator and collateralised lending, examples of which are Gilchrist, Ortiz and...

We show that when a model has more shocks than observed variables the estimated filtered and smoothed shocks will be correlated. This is despite no correlation being present in the data generating process. Additionally the estimated shock innovations may be autocorrelated. These correlations...

Representative models of the macroeconomy (RMs), such as DSGE models, frequently contain unobserved variables. A finite-order VAR representation in the observed variables may not exist, and therefore the impulse responses of the RMs and SVAR models may differ. We demonstrate this divergence...

Implications of partial information for applied macroeconomic modelling along four dimensions are shown, and analysis provided on how they can be addressed. First, when permanent shocks are present a Vector Error-Correction Model including latent, as well as observed, variables is required to...