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Recoverability

Author

Listed:
  • Ryan Chahrour

    (Boston College)

  • Kyle Jurado

    (Duke University)

Abstract

When can structural shocks be recovered from observable data? We present a necessary and sufficient condition that gives the answer for any linear model. Invertibility, which requires that shocks be recoverable from current and past data only, is sufficient but not necessary. This means that semi-structural empirical methods like structural vector autoregression analysis can be applied even to models with non-invertible shocks. We illustrate these results in the context of a simple model of consumption determination with productivity shocks and non-productivity noise shocks. In an application to postwar U.S. data, we find that non-productivity shocks account for a large majority of fluctuations in aggregate consumption over business cycle frequencies.

Suggested Citation

  • Ryan Chahrour & Kyle Jurado, 2017. "Recoverability," Boston College Working Papers in Economics 935, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:935
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    References listed on IDEAS

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    Cited by:

    1. Silvia Miranda Agrippino & Giovanni Ricco, 2018. "Identification with external instruments in structural VARs under partial invertibility," Working Papers hal-03475454, HAL.
    2. Nikolay Iskrev, 2021. "Spectral decomposition of the information about latent variables in dynamic macroeconomic models," Working Papers w202105, Banco de Portugal, Economics and Research Department.
    3. repec:hal:spmain:info:hdl:2441/sb7ftvod18eb8hqptthmmeddt is not listed on IDEAS
    4. Paul Levine & Joseph Pearlman & Stephen Wright & Bo Yang, 2019. "Information, VARs and DSGE Models," School of Economics Discussion Papers 1619, School of Economics, University of Surrey.
    5. Majid M. Al-Sadoon, 2020. "The Spectral Approach to Linear Rational Expectations Models," Papers 2007.13804, arXiv.org, revised Jun 2023.
    6. Miranda-Agrippino, Silvia & Ricco, Giovanni, 2019. "Identification with External Instruments in Structural VARs under Partial Invertibility," The Warwick Economics Research Paper Series (TWERPS) 1213, University of Warwick, Department of Economics.

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    More about this item

    Keywords

    structural vector autoregression; noise shocks;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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