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Structural vector autoregressions with Markov switching: Combining conventional with statistical identification of shocks

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  • Herwartz, Helmut
  • Lütkepohl, Helmut

Abstract

In structural vector autoregressive (SVAR) analysis a Markov regime switching (MS) property can be exploited to identify shocks if the reduced form error covariance matrix varies across regimes. Unfortunately, these shocks may not have a meaningful structural economic interpretation. It is discussed how statistical and conventional identifying information can be combined. The discussion is based on a VAR model for the US containing oil prices, output, consumer prices and a short-term interest rate. The system has been used for studying the causes of the early millennium economic slowdown based on traditional identification with zero and long-run restrictions and using sign restrictions. We find that previously drawn conclusions are questionable in our framework.

Suggested Citation

  • Herwartz, Helmut & Lütkepohl, Helmut, 2014. "Structural vector autoregressions with Markov switching: Combining conventional with statistical identification of shocks," Journal of Econometrics, Elsevier, vol. 183(1), pages 104-116.
  • Handle: RePEc:eee:econom:v:183:y:2014:i:1:p:104-116
    DOI: 10.1016/j.jeconom.2014.06.012
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    More about this item

    Keywords

    Vector autoregressive model; Markov process; EM algorithm; Impulse responses;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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