VAR Information and the Empirical Validation of DSGE Models

A shock of interest can be recovered, either exactly or with a good approximation, by
means of standard VAR techniques even when the structural MA representation is noninvertible or non-fundamental. We propose a measure of how informative a VAR model
is for a specific shock of interest. We show how to use such a measure for the validation
of shocks’ transmission mechanism of DSGE models through VARs. In an application, we
validate a theory of news shocks. The theory does remarkably well for all variables, but
understates the long-run effects of technology news on TFP.