Sufficient information in structural VARs

Mario Forni, Luca Gambetti

Research output: Contribution to journalArticleResearchpeer-review

50 Citations (Scopus)

Abstract

Necessary and sufficient conditions under which a VAR contains sufficient information to estimate the structural shocks are derived. On the basis of this theoretical result we propose two simple tests to detect informational deficiency and a procedure to amend a deficient VAR. A simulation based on a DSGE model with fiscal foresight suggests that our method correctly identifies and fixes the informational problem. In an empirical application, we show that a bivariate VAR including unemployment and labor productivity is informationally deficient. Once the relevant information is included into the model, technology shocks appear to be contractionary. © 2014 Elsevier B.V.
Original languageEnglish
Pages (from-to)124-136
JournalJournal of Monetary Economics
Volume66
DOIs
Publication statusPublished - 1 Jan 2014

Keywords

  • ABCD representation
  • FAVAR models
  • Non-fundamentalness

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