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When Do Long-Run Identifying Restrictions Give Reliable Results?

  • Faust, Jon
  • Leeper, Eric M

Many recent articles have identified behavioral disturbances in vector autoregressions by imposing restrictions on the long-run effects of shocks. This article demonstrates that this approach will be unreliable unless the underlying economy satisfies three types of strong restrictions. Although many aspects of these issues have been raised before, this article draws out and illustrates the implications for inferences under the long-run scheme. Furthermore, it provides strategies for dealing with the problems.

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Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 15 (1997)
Issue (Month): 3 (July)
Pages: 345-53

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Handle: RePEc:bes:jnlbes:v:15:y:1997:i:3:p:345-53
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  1. Hendry, David F., 1992. "An econometric analysis of TV advertising expenditure in the United Kingdom," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 281-311, June.
  2. Tamim Bayoumi and Barry Eichengreen., 1992. "Macroeconomic Adjustment Under Bretton Woods and the Post-Bretton-Woods Float: An Impulse- Response Analysis," Economics Working Papers 92-201, University of California at Berkeley.
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  4. Lippi, Marco & Reichlin, Lucrezia, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(3), pages 644-52, June.
  5. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
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  7. Lastrapes, William D. & Selgin, George, 1995. "The liquidity effect: Identifying short-run interest rate dynamics using long-run restrictions," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 387-404.
  8. Novales, Alfonso, 1990. "Solving Nonlinear Rational Expectations Models: A Stochastic Equilibrium Model of Interest Rates," Econometrica, Econometric Society, vol. 58(1), pages 93-111, January.
  9. Ahmed, Shaghil & Ickes, Barry W. & Ping Wang & Byung Sam Yoo, 1993. "International Business Cycles," American Economic Review, American Economic Association, vol. 83(3), pages 335-59, June.
  10. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
  11. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-57, May.
  12. Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley.
  13. Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, vol. 88(351), pages 549-63, September.
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