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Identification of technology shocks using misspecified VARs

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  • Ufuk Devrim Demirel

Abstract

Studies that evaluate the effects of technology shocks often employ structural VARs identified with long-run restrictions. In the presence of a mismatch between the lag structures of the true data-generating process and the adopted VAR, estimates based on long-run restrictions can be biased. This paper offers a method that can reduce this bias substantially. Using artificial data, I assess the performance of the proposed method and find that it can outperform a range of alternative procedures. Applying the procedure to the US data, I find that per-capita hours exhibit a positive hump-shaped response profile in response to a technology shock.

Suggested Citation

  • Ufuk Devrim Demirel, 2015. "Identification of technology shocks using misspecified VARs," Canadian Journal of Economics, Canadian Economics Association, vol. 48(4), pages 1321-1349, November.
    • Handle: RePEc:cje:issued:v:48:y:2015:i:4:p:1321-1349
    DOI: 10.1111/caje.12149
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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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