Assessing structural VARs
AbstractThis paper analyzes the quality of VAR-based procedures for estimating the response of the economy to a shock. We focus on two key issues. First, do VAR-based confidence intervals accurately reflect the actual degree of sampling uncertainty associated with impulse response functions? Second, what is the size of bias relative to confidence intervals, and how do coverage rates of confidence intervals compare with their nominal size? We address these questions using data generated from a series of estimated dynamic, stochastic general equilibrium models. We organize most of our analysis around a particular question that has attracted a great deal of attention in the literature: How do hours worked respond to an identified shock? In all of our examples, as long as the variance in hours worked due to a given shock is above the remarkably low number of 1 percent, structural VARs perform well. This finding is true regardless of whether identification is based on short-run or long-run restrictions. Confidence intervals are wider in the case of long-run restrictions. Even so, long-run identified VARs can be useful for discriminating among competing economic models.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 866.
Date of creation: 2006
Date of revision:
Other versions of this item:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-25 (All new papers)
- NEP-ETS-2006-11-25 (Econometric Time Series)
- NEP-MAC-2006-11-25 (Macroeconomics)
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.:
- Frank Smets & Raf Wouters, 2002.
"An estimated dynamic stochastic general equilibrium model of the euro area,"
Working Paper Research
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- Christopher Erceg & Luca Guerrieri & Christopher Gust, 2004.
"Can long-run restrictions identify technology shocks?,"
International Finance Discussion Papers
792, Board of Governors of the Federal Reserve System (U.S.).
- Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Can Long-Run Restrictions Identify Technology Shocks?," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1237-1278, December.
- Christopher J. Erceg & Luca Guerrieri, 2004. "Can Long-Run Restrictions Identify Technology Shocks?," Computing in Economics and Finance 2004 3, Society for Computational Economics.
- Pierre-Daniel G. Sarte, 1997. "On the identification of structural vector autoregressions," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 45-68.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Matching Theory and Data: Bayesian Vector Autoregression and Dynamic Stochastic General Equilibrium Models
by Christian Zimmermann in NEP-DGE blog on 2009-09-27 01:45:04
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