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How the global perspective can help us identify structural shocks

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  • Alexander Chudik
  • Michael Fidora

Abstract

This paper argues that global perspective can help us with the identification of structural shocks by utilizing the information on the signs of the responses of individual countries (cross section units). We demonstrate the main idea by means of Monte Carlo experiments and present an empirical application where we look at the effects of oil supply shocks on output and on global exchange rate constellation. Using a large-scale GVAR model of oil prices and the global economy, we find supply shocks tend to have a stronger impact on emerging economies' real output as compared with mature economies, have a negative impact on real growth in oil-exporting economies as well, and tend to cause an appreciation (depreciation) of oil exporters' (oil importers') real exchange rates but also lead to an appreciation of the U.S. dollar. This paper also illustrates some pitfalls with the existing measures to summarize the available information on structural shocks identified using sign restrictions when the dimension of the model is large (as it is in the case of global models).

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File URL: http://www.dallasfed.org/assets/documents/research/staff/staff1204.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Dallas in its journal Staff Papers.

Volume (Year): (2012)
Issue (Month): Dec ()
Pages:

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Handle: RePEc:fip:feddst:y:2012:i:dec:n:19

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  1. Matthieu Bussière & Alexander Chudik & Giulia Sestieri, 2012. "Modelling global trade flows: results from a GVAR model," Globalization and Monetary Policy Institute Working Paper 119, Federal Reserve Bank of Dallas.
  2. Fabio Canova & Joaquim Pires Pina, 1998. "Monetary policy misspecification in VAR models," Economics Working Papers 420, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 1999.
  3. Chudik, Alexander & Fidora, Michael, 2011. "Using the global dimension to identify shocks with sign restrictions," Working Paper Series 1318, European Central Bank.
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