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Long-run Identification in a Fractionally Integrated System

Author

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  • Tschernig, Rolf
  • Weber, Enzo
  • Weigand, Roland

Abstract

We propose an extension of structural fractionally integrated vector autoregressive models that avoids certain undesirable effects for impulse responses if long-run identification restrictions are imposed. We derive its Granger representation, investigate the effects of long-run restrictions and clarify their relation to finite-horizon schemes. It is illustrated by asymptotic analysis and simulations that enforcing integer integration orders can have severe consequences for impulse responses. In a system of US real output and aggregate prices effects of structural shocks strongly depend on integration order specification. In the statistically preferred fractional model the long-run restricted shock has only very short-lasting influence on GDP.

Suggested Citation

  • Tschernig, Rolf & Weber, Enzo & Weigand, Roland, 2010. "Long-run Identification in a Fractionally Integrated System," University of Regensburg Working Papers in Business, Economics and Management Information Systems 447, University of Regensburg, Department of Economics.
  • Handle: RePEc:bay:rdwiwi:16901
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    File URL: https://epub.uni-regensburg.de/16901/1/IdentSFVAR_DP447.pdf
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    Cited by:

    1. Johansen, Søren & Nielsen, Morten Ørregaard, 2016. "The Role Of Initial Values In Conditional Sum-Of-Squares Estimation Of Nonstationary Fractional Time Series Models," Econometric Theory, Cambridge University Press, vol. 32(05), pages 1095-1139, October.
    2. Søren Johansen & Morten Ørregaard Nielsen, 2012. "The role of initial values in nonstationary fractional time series models," CREATES Research Papers 2012-47, Department of Economics and Business Economics, Aarhus University.
    3. Yuliya Lovcha & Alejandro Perez-Laborda, 2017. "Structural shocks and dynamic elasticities in a long memory model of the US gasoline retail market," Empirical Economics, Springer, vol. 53(2), pages 405-422, September.
    4. Tschernig, Rolf & Weber, Enzo & Weigand, Roland, 2014. "Long- versus medium-run identification in fractionally integrated VAR models," Economics Letters, Elsevier, vol. 122(2), pages 299-302.
    5. Lovcha, Yuliya & Pérez Laborda, Àlex, 2013. "Hours worked - Productivity puzzle: identification in fractional integration settings," Working Papers 2072/211796, Universitat Rovira i Virgili, Department of Economics.

    More about this item

    Keywords

    Long memory; structural VAR; misspecification; GDP; price level;

    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
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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