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Structural Vector Autoregressions with Nonnormal Residuals

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Markku Lanne
Helmut Luetkepohl

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Abstract

In structural vector autoregressive (SVAR) models identifying restrictions for shocks and impulse responses are usually derived from economic theory or institutional constraints. Sometimes the restrictions are insufficient for identifying all shocks and impulse responses. In this paper it is pointed out that specific distributional assumptions can also help in identifying the structural shocks. In particular, a mixture of normal distributions is considered as a plausible model that can be used in this context. Our model setup makes it possible to test restrictions which are just-identifying in a standard SVAR framework. In particular, we can test for the number of transitory and permanent shocks in a cointegrated SVAR model. The results are illustrated using a data set from King, Plosser, Stock and Watson (1991) and a system of US and European interest rates.Classification-JEL: C32

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2005/25.

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Date of creation: 2005
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Handle: RePEc:eui:euiwps:eco2005/25

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Keywords: Mixture normal distribution cointegration vector autoregressive process vector error correction model impulse responses

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