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Are the shocks obtained from SVAR fundamental?

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  • Hamidi Sahneh, Mehdi

Abstract

This paper provides new conditions under which the shocks recovered from the estimates of structural vector autoregressions are fundamental. I prove that the Wold innovations are unpredictable if and only if the model is fundamental. I propose a test based on a generalized spectral density to check the unpredictability of the Wold innovations. The test is applied to study the dynamic effects of government spending on economic activity. I find that standard SVAR models commonly employed in the literature are non-fundamental. Moreover, I formally show that introduction of a narrative variable that measures anticipation restores fundamentalness.

Suggested Citation

  • Hamidi Sahneh, Mehdi, 2015. "Are the shocks obtained from SVAR fundamental?," MPRA Paper 65126, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65126
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    References listed on IDEAS

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    Cited by:

    1. Hamidi Sahneh, Mehdi, 2016. "Testing for Non-Fundamentalness," MPRA Paper 71924, University Library of Munich, Germany.
    2. Paul Beaudry & Patrick Feve & Alain Guay & Franck Portier, 2019. "When is Nonfundamentalness in SVARs a Real Problem?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 221-243, October.
    3. Hamidi Sahneh, Mehdi, 2013. "Testing for Noncausal Vector Autoregressive Representation," MPRA Paper 68867, University Library of Munich, Germany, revised 16 Aug 2014.

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    More about this item

    Keywords

    Fundamentalness; Identification; Invertible Moving Average; Vector Autoregressive;
    All these keywords.

    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
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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