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How to advance theory with structural VARs: use the Sims-Cogley-Nason approach

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  • Patrick J. Kehoe

Abstract

The common approach to evaluating a model in the structural VAR literature is to compare the impulse responses from structural VARs run on the data to the theoretical impulse responses from the model. The Sims-Cogley-Nason approach instead compares the structural VARs run on the data to identical structural VARs run on data from the model of the same length as the actual data. Chari, Kehoe, and McGrattan (2006) argue that the inappropriate comparison made by the common approach is the root of the problems in the SVAR literature. In practice, the problems can be solved simply. Switching from the common approach to the Sims-Cogley-Nason approach basically involves changing a few lines of computer code and a few lines of text. This switch will vastly increase the value of the structural VAR literature for economic theory.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 379.

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Date of creation: 2006
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Publication status: Published in NBER Macroeconomics Annual 2006
Handle: RePEc:fip:fedmsr:379

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Keywords: Econometrics;

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Cited by:
  1. Alastair Hall & Atsushi & James M Nason & Barbara Rossi, 2009. "Information Criteria For Impulse Response Function Matching Estimation Of Dsge Models," Working Papers 09-09, Duke University, Department of Economics.
  2. Kascha, Christian & Mertens, Karel, 2009. "Business cycle analysis and VARMA models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 267-282, February.
  3. Rochelle M. Edge & Thomas Laubach & John C. Williams, 2007. "Welfare-maximizing monetary policy under parameter uncertainty," Working Paper Series 2007-11, Federal Reserve Bank of San Francisco.
  4. Kuester, Keith & Müller, Gernot J. & Stölting, Sarah, 2007. "Is the New Keynesian Phillips curve flat?," Working Paper Series 0809, European Central Bank.
  5. Karel Mertens & Morten Overgaard Ravn, 2010. "Online Appendix to "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks"," Technical Appendices 09-221, Review of Economic Dynamics.
  6. Morten O. Ravn & Karel Mertens, 2009. "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy shocks," 2009 Meeting Papers 480, Society for Economic Dynamics.
  7. Fabio Canova & Filippo Ferroni, 2010. "Multiple Filtering Devices for the Estimation of Cyclical DSGE Models," Working Papers 498, Barcelona Graduate School of Economics.
  8. Alfred Stiassny & Christina Uhl, 2014. "Does Elderly Employment have an Impact on Youth Employment? A General Equilibrium Approach," Department of Economics Working Papers wuwp178, Vienna University of Economics, Department of Economics.

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