This paper sets up and estimates a DSGE model using Bayesian techniques applied to both simulated and real data for the Italian economy. Firstly, we conduct some empirical tests of habit formation on consumption growth, by estimating a GMM analysis of the consumption equation. Afterwards, this study estimates and compares, in terms of impulse responses, the DSGE model with a Bayesian VAR identified both with Cholesky decomposition and by imposing restrictions on the sign of impulse responses. Overall, this paper aims to give a reasonable approximation of the behavior of the Italian economy using both theoretical and empirical tools.
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