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Identification and Estimation in Non-Fundamental Structural VARMA Models

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  • Christian Gouriéroux
  • Alain Monfort
  • Jean-Paul Renne

Abstract

The basic assumption of a structural vector autoregressive moving average (SVARMA) model is that it is driven by a white noise whose components are uncorrelated or independent and can be interpreted as economic shocks, called “structural” shocks. When the errors are Gaussian, independence is equivalent to non-correlation and these models face two identification issues. The first identification problem is “static” and is due to the fact that there is an infinite number of linear transformations of a given random vector making its components uncorrelated. The second identification problem is “dynamic” and is a consequence of the fact that, even if a SVARMA admits a non-invertible moving average (MA) matrix polynomial, it may feature the same second-order dynamic properties as a VARMA process in which the MA matrix polynomials are invertible (the fundamental representation). The aim of this article is to explain that these difficulties are mainly due to the Gaussian assumption, and that both identification challenges are solved in a non-Gaussian framework if the structural shocks are assumed to be instantaneously and serially independent. We develop new parametric and semi-parametric estimation methods that accommodate non-fundamentalness in the MA dynamics. The functioning and performances of these methods are illustrated by applications conducted on both simulated and real data.

Suggested Citation

  • Christian Gouriéroux & Alain Monfort & Jean-Paul Renne, 2020. "Identification and Estimation in Non-Fundamental Structural VARMA Models," Review of Economic Studies, Oxford University Press, vol. 87(4), pages 1915-1953.
  • Handle: RePEc:oup:restud:v:87:y:2020:i:4:p:1915-1953.
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    File URL: http://hdl.handle.net/10.1093/restud/rdz028
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    Keywords

    Structural VARMA; Fundamental Representation; Identification; Structural Shocks; Impulse Response Function;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • 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
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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