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The reason is that the log\u2010linear solution of a DSGE model has a factor structure which ensures consistency between the representations of the two models. We assess the usefulness of SDFM for DSGE analysis by means of simulations. Using a standard DSGE model as the data generating process, we show that the factor model always provides accurate estimates of the impulse response functions. As an application, we reassess the literature studying the response of hours to technology shock. An additional application studies the effects of monetary policy.<\/jats:p>","DOI":"10.1002\/jae.3122","type":"journal-article","created":{"date-parts":[[2025,3,27]],"date-time":"2025-03-27T06:28:58Z","timestamp":1743056938000},"page":"487-507","update-policy":"https:\/\/doi.org\/10.1002\/crossmark_policy","source":"Crossref","is-referenced-by-count":1,"title":["Informing DSGE Models Through Dynamic Factor Models"],"prefix":"10.1002","volume":"40","author":[{"given":"Mario","family":"Forni","sequence":"first","affiliation":[{"name":"Universit\u00e0 di Modena e Reggio Emilia, CEPR and RECent  Modena Italy"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Luca","family":"Gambetti","sequence":"additional","affiliation":[{"name":"BSE Universitat Aut\u00f2noma de Barcelona  Barcelona Spain"},{"name":"CCA Universit\u00e0 di Torino  Turin Italy"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Marco","family":"Lippi","sequence":"additional","affiliation":[{"name":"Einaudi Institute for Economics and Finance  Rome Italy"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Luca","family":"Sala","sequence":"additional","affiliation":[{"name":"Universit\u00e0 Bocconi, IGIER and Baffi Carefin  Milan Italy"}],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2025,3,25]]},"reference":[{"key":"e_1_2_10_2_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.spl.2010.08.005"},{"key":"e_1_2_10_3_1","first-page":"1980","article-title":"Generalized Linear Dynamic Factor Models\u2013A Structure Theory","author":"Anderson B. 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