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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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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. David Hendry & Maozu Lu, 2001. "Model Identification and Non-unique Structure," Economics Series Working Papers 2002-W10, University of Oxford, Department of Economics.
  2. 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.
  3. Jordi Galí & Richard Clarida, 1993. "Sources of real exchage rate fluctuations: How important are nominal shocks?," Economics Working Papers 66, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1994.
  4. Bayoumi, Tamim & Taylor, Mark P, 1992. "Macroeconomic Shocks, the ERM, and Tri-Polarity," CEPR Discussion Papers 711, C.E.P.R. Discussion Papers.
  5. repec:cup:macdyn:v:5:y:2001:i:4:p:466-81 is not listed on IDEAS
  6. 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.
  7. 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.
  8. 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.
  9. Granger, Clive W.J., 2001. "Overview Of Nonlinear Macroeconometric Empirical Models," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 466-481, September.
  10. 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.
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