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A Monte Carlo test for the identifying assumptions of the Blanchard and Quah (1989) model

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  • Hyeon-Seung Huh

Abstract

In their VAR model, Blanchard and Quah (BQ, 1989) employed uncorrelatedness between Aggregate Supply (AS) and Aggregate Demand (AD) shocks and the long-run output neutrality condition as identifying assumptions. This article conducts a simple Monte Carlo experiment to gauge how well the BQ procedure can approximate the true structure if the underlying assumptions of uncorrelatedness and long-run output neutrality are not supported by data.

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  • Hyeon-Seung Huh, 2013. "A Monte Carlo test for the identifying assumptions of the Blanchard and Quah (1989) model," Applied Economics Letters, Taylor & Francis Journals, vol. 20(6), pages 601-605, April.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:6:p:601-605
    DOI: 10.1080/13504851.2012.725923
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