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Graphical Models for Structural Vector Autoregressions

Listed author(s):
  • Alessio Moneta

In this paper a method to identify the causal structure associated with a VAR model is proposed. The structure is described by means of a graph, which provides a rigorous language to analyze the statistical and logical properties of causal relations. Under some general assumptions, causal relations are associated with a set of vanishing partial correlations among the variables that constitute them. In order to infer the causal structure among the contemporaneous variable, tests on vanishing partial correlations among the estimated residuals of a VAR are used, jointly with background knowledge. This method is applied to an updated version of the King et al. (1991) dataset and it allows to obtain an orthogonalization of the residuals coherent with the causal structure among the contemporaneous variables and alternative to the standard one, which is based on the Choleski factorization of the covariance matrix of the residuals. The impulse response functions calculated, with the method proposed here, for the King et al. (1991) model confirm their results about the fact that US macroeconomic data do not support the hypothesis that real permanent shocks are the dominant source of business-cycle fluctuations.

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Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2003/07.

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Date of creation: 09 Dec 2003
Handle: RePEc:ssa:lemwps:2003/07
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  1. Gilli, Manfred, 1992. "Causal Ordering and Beyond," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 957-971, November.
  2. Hoover,Kevin D., 2001. "Causality in Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521002882, January.
  3. Glymour, Clark & Spirtes, Peter, 1988. "Latent variables, causal models and overidentifying constraints," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 175-198.
  4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  5. Alessio Moneta, 2004. "Identification of Monetary Policy Shocks: A graphical causal approach," Notas Económicas, Faculty of Economics, University of Coimbra, issue 20, pages 39-62, December.
  6. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  7. Bessler, David A. & Yang, Jian, 2003. "The structure of interdependence in international stock markets," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 261-287, April.
  8. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-353, July.
  9. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-840, September.
  10. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
  11. Michael S. Haigh & David A. Bessler, 2004. "Causality and Price Discovery: An Application of Directed Acyclic Graphs," The Journal of Business, University of Chicago Press, vol. 77(4), pages 1099-1121, October.
  12. Titus O. Awokuse & David A. Bessler, 2003. "Vector Autoregressions, Policy Analysis, and Directed Acyclic Graphs: An Application to the U.S. Economy," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 1-24, May.
  13. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
  14. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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