A Discussion of the Reliability of Results Obtained with Long-Run Identifying Restrictions
AbstractIn a recent article, Faust and Leeper (1997) discuss reasons why inference from structural VARs identified with long-run restrictions may not be reliable. In this paper, the authors argue that there are reasons to believe that Faust and Leeper's arguments are not devastating in practice. First, simulation exercises suggest that this approach does well when used with data generated with standard macroeconomic models. Second, empirical applications suggest that it gives results that are much more robust than would be implied by Faust and Leeper's main proposition. A reasonable approach would appear to be, therefore, to follow Sims' (1971; 1972) and Dufour's (1997) recommendation and to present robustness checks, allowing readers to judge for themselves what the effects of possible approximation errors might be.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 98-4.
Length: 26 pages
Date of creation: 1998
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Econometric and statistical methods;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
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