The Dynamic Factor Models Representations And Application Of Two Types Of DSGE Models

Firstly, in order to interpret the economic meaning of unobservable dynamic factors in DFMs, identify the common factors which drive fluctuations in economic variables, and provide a new approach to estimate the DSGE models, we take New Keynesian DSGE models and MS-DSGE models for example in this paper, having investigated the DFMs representation of two types of DSGE models. we find the dynamic behavior of New Keynesian DSGE model and MS-DSGE model are all decided by the combination effect of common factors and exogenous shocks; and two types of DSGE model can be expressed respectively as standard DFM and MS-DFM. In addition, some economic facts were also found from the dynamic factors and their interrelations, for example, the exogenous differentiation of product has common shock effect to economic system, technical progress effect of monetary policy and so on.Secondly, this paper identifies and estimates the model as well as obtains the conditions which influence the robustness of estimation methods through simulation analysis methods. The DFM is set up based on the theoretical basis of new Keynesian DSGE models, which makes the dynamic factor is observable economic variables. Therefore, the estimation method in this paper is different from the general DFM estimation method. This paper adopts the constrained ML estimation and GLS estimation to estimate dynamic factor equation and observation equation. The constraint conditions of the two methods are based on economic significance as well as the characteristics of the coefficient matrix obtained while DSGE model is expressed as DFM. The estimation method in this paper is the organic combination of DSGE model and DFM.Finally, this paper has analyzed the pulse response of output and inflation impact on four exogenous shocks based on DSGE model and the estimate method of DFM. The result of empirical analysis shows the ever-increasing technology shocks can cause long-term economic growth, and under the existing economic structure, the policy of stimulating domestic demand will not effectively increase output. The government can adopt a series of macroeconomic policies, such as structural tax cuts, talent strategy and so on to promote the development of high-tech industries. Simultaneously policymakers should not pay attention to stimulating domestic demand blindly, but to the policies to adjust economic structure. Interest rate shocks has the biggest impact on inflation rate, this shows we can use the corresponding monetary policy intervention, when there is a serious inflation in the economic, but because the cause of the volatility of inflation, therefore we should consider to use.