VARMA Representation of DSGE Models

Abstract

This note develops simple conditions from which to determine the most concise VARMA representation of a given DSGE model. It is proven analytically that the Smets and Wouters (2007) model has exact VARMA(3,2) representation. In this model, the largest possible subset of structural parameters which is locally identifiable from the entire likelihood is also so merely from the subset of identifiable VARMA parameters.