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Structural Vector Autoregressions with Markov Switching

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  • Markku Lanne
  • Helmut Luetkepohl
  • Katarzyna Maciejowska

Abstract

It is argued that in structural vector autoregressive (SVAR) analysis a Markov regime switching (MS) property can be exploited to identify shocks if the reduced form error covariance matrix varies across regimes. The model setup is formulated and discussed and it is shown how it can be used to test restrictions which are just-identifying in a standard structural vector autoregressive analysis. The approach is illustrated by two SVAR examples which have been reported in the literature and which have features which can be accommodated by the MS structure.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2009/06.

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Date of creation: 2009
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Handle: RePEc:eui:euiwps:eco2009/06

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Keywords: Cointegration; Markov regime switching model; vector error correction model; structural vector autoregression; mixed normal distribution;

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References

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  1. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  3. Markku Lanne & Helmut Luetkepohl, 2006. "Structural Vector Autoregressions with Nonnormal Residuals," CESifo Working Paper Series 1651, CESifo Group Munich.
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  7. Christopher A. Sims & Tao Zha, 2005. "Were There Regime Switches in U.S. Monetary Policy?," Working Papers 92, Princeton University, Department of Economics, Center for Economic Policy Studies..
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  18. Binswanger, Mathias, 2004. "How do stock prices respond to fundamental shocks?," Finance Research Letters, Elsevier, vol. 1(2), pages 90-99, June.
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