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Are the shocks obtained from SVAR fundamental?

Listed author(s):
  • Hamidi Sahneh, Mehdi

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.

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File URL: https://mpra.ub.uni-muenchen.de/65126/1/MPRA_paper_65126.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 65126.

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Date of creation: 15 Jun 2015
Handle: RePEc:pra:mprapa:65126
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