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General-to-Specific Model Selection Procedures for Structural Vector Autoregressions

  • Hans-Martin Krolzig

Structural vector autoregressive (SVAR) models have emerged as a dominant research strategy in empirical macroeconomics, but suffer from the large number of parameters employed and the resulting estimation uncertainty associated with their impulse responses. In this paper, we propose general-to-specific ("Gets") model selection procedures to overcome these limitations. It is shown that single-equation procedures are generally efficient for the reduction of recursive SVAR models. The small-sample properties of the proposed reduction procedure (as implemented using "PcGets") are evaluated in a realistic Monte Carlo experiment. The impulse responses generated by the selected SVAR are found to be more precise and accurate than those of the unrestricted VAR. The proposed reduction strategy is then applied to the US monetary system considered by Christiano, Eichenbaum and Evans ("Review of Economics and Statistics", Vol. 78, pp. 16-34, 1996) . The results are consistent with the Monte Carlo and question the validity of the impulse responses generated by the full system. Copyright 2003 Blackwell Publishing Ltd.

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 65 (2003)
Issue (Month): s1 (December)
Pages: 769-801

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Handle: RePEc:bla:obuest:v:65:y:2003:i:s1:p:769-801
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  1. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  2. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 167-191.
  3. Hendry, David F & Hans-Martin Krolzig, 2003. "The Properties of Automatic Gets Modelling," Royal Economic Society Annual Conference 2003 105, Royal Economic Society.
  4. Ralf BRUEGGEMANN & Hans-Martin KROLZIG & Helmut LUETKEPOHL, 2002. "Comparison of Model Reduction Methods for VAR Processes," Economics Working Papers ECO2002/19, European University Institute.
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  8. Kevin Hoover & Selva Demiralp, 2003. "Searching for the Causal Structure of a Vector Autoregression," Working Papers 33, University of California, Davis, Department of Economics.
  9. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
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  12. Hans-Martin Krolzig, 2001. "General--to--Specific Reductions of Vector Autoregressive Processes," Computing in Economics and Finance 2001 164, Society for Computational Economics.
  13. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  14. Krolzig, Hans-Martin & Peter Flaschel, 2003. "Wage and Price Phillips Curves," Royal Economic Society Annual Conference 2003 128, Royal Economic Society.
  15. Hendry, David F. & Mizon, Grayham E., 2001. "Reformulating empirical macro-econometric modelling," Discussion Paper Series In Economics And Econometrics 0104, Economics Division, School of Social Sciences, University of Southampton.
  16. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  17. Omtzigt Pieter, 2002. "Automatic identification and restriction of the cointegration space," Economics and Quantitative Methods qf0213, Department of Economics, University of Insubria.
  18. Dungey, Mardi & Pagan, Adrian, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-42, December.
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