Economic and VAR Shocks: What Can Go Wrong?
AbstractThis paper discusses the problem of invertibility between the economic shocks in a dynamic equilibrium model and the corresponding VAR innovations. We present an algebraic check of invertibility based on the model fundamentals and we find the identification scheme that recovers the economic shocks from the VAR innovations when the model is invertible. We illustrate our results with a model of the Great Depression proposed by Christiano, Motto, and Rostagno (2003). (JEL: E00, E32, C32) (c) 2006 by the European Economic Association.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000990.
Date of creation: 08 Dec 2006
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Other versions of this item:
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-DGE-2006-01-24 (Dynamic General Equilibrium)
- NEP-ETS-2006-01-24 (Econometric Time Series)
- NEP-MAC-2006-01-24 (Macroeconomics)
- NEP-PBE-2006-01-24 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Christiano, Lawrence J, 1990. "Linear-Quadratic Approximation and Value-Function Iteration: A Comparison," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 99-113, January.
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- Linnemann, Ludger, 2009. "Macroeconomic effects of shocks to public employment," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 252-267, June.
- Helmut Lütkepohl, 2012. "Fundamental Problems with Nonfundamental Shocks," Discussion Papers of DIW Berlin 1230, DIW Berlin, German Institute for Economic Research.
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