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Estimating structural macroeconomic shocks through long-run recursive restrictions on vector autoregressive models: the problem of identification

  • Mark P. Taylor

    (Department of Economics, University of Warwick, and Centre for Economic Policy Research, UK)

We demonstrate that a popular method of estimating underlying structural macroeconomic shocks and their impulse-response functions through recursive long-run structural restrictions on a vector autoregressive representation is not uniquely identified. We show, however, that it may be possible to infer additional qualitative restrictions to achieve identification. We illustrate with two applied examples, corresponding to a simple aggregate supply-aggregate demand framework for the USA and to a stochastic Mundell-Fleming-Dornbusch framework for the USA and Japan. The second example also illustrates how over-identifying restrictions of the underlying framework may be examined informally. Copyright © 2004 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.247
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 9 (2004)
Issue (Month): 3 ()
Pages: 229-244

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Handle: RePEc:ijf:ijfiec:v:9:y:2004:i:3:p:229-244
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  1. Matthew Shapiro & Mark Watson, 1988. "Sources of Business Cycles Fluctuations," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 111-156 National Bureau of Economic Research, Inc.
  2. Ahmed, S. & Ickes, B. & Wang, P. & Yoo, S., 1989. "International Business Cycles," Papers 7-89-4, Pennsylvania State - Department of Economics.
  3. repec:cup:macdyn:v:5:y:2001:i:4:p:466-81 is not listed on IDEAS
  4. Richard Clarida & Jordi Gali, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," NBER Working Papers 4658, National Bureau of Economic Research, Inc.
  5. David Hendry & Maozu Lu & Grayham E. Mizon, 2001. "Model Identification and Non-unique Structure," Economics Papers 2002-W10, Economics Group, Nuffield College, University of Oxford.
  6. Lothian, James R. & Taylor, Mark P., 1997. "Real exchange rate behavior," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 945-954, December.
  7. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
  8. Bayoumi, Tamim & Taylor, Mark P, 1992. "Macroeconomic Shocks, the ERM, and Tri-Polarity," CEPR Discussion Papers 711, C.E.P.R. Discussion Papers.
  9. Kilian, Lutz, 2001. "Impulse Response Analysis in Vector Autoregressions with Unknown Lag Order," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(3), pages 161-79, April.
  10. Granger, Clive W.J., 2001. "Overview Of Nonlinear Macroeconometric Empirical Models," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 466-481, September.
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