Do the Innovations in a Monetary VAR Have Finite Variances?
AbstractSince Christopher Sims's "Macroeconomics and Reality" (1980), macroeconomists have used structural VARs, or vector autoregressions, for policy analysis. Constructing the impulse-response functions and variance decompositions that are central to this literature requires factoring the variance-covariance matrix of innovations from the VAR. This paper presents evidence consistent with the hypothesis that at least some elements of this matrix are infinite for one monetary VAR, as the innovations have stable, non-Gaussian distributions, with characteristic exponents ranging from 1.5504 to 1.7734 according to ML estimates. Hence, Cholesky and other factorizations that would normally be used to identify structural residuals from the VAR are impossible.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_546.
Date of creation: Oct 2008
Date of revision:
Contact details of provider:
Web page: http://www.levyinstitute.org
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-28 (All new papers)
- NEP-CBA-2008-10-28 (Central Banking)
- NEP-ECM-2008-10-28 (Econometrics)
- NEP-MAC-2008-10-28 (Macroeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Greg Hannsgen, 2011. "Infinite-variance, Alpha-stable Shocks in Monetary SVAR: Final Working Paper Version," Economics Working Paper Archive wp_682, Levy Economics Institute, The.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards).
If references are entirely missing, you can add them using this form.