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Are Spectral Estimators Useful for Implementing Long-Run Restrictions in SVARs?

Author

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  • Elmar Mertens

    (Study Center Gerzensee and University of Lausanne)

Abstract

No, not really. Responding to lingering concerns about the reliability of SVARs, Christiano et al (NBER Macro Annual, 2006, "CEV") propose to combine OLS estimates of a VAR with a spectral estimate of long-run variance. In principle, this could help alleviate specification problems of SVARs in identifying long-run shocks. But in practice, spectral estimators suffer from small sample biases similar to those from VARs. Moreover, the spectral estimates contain information about serial correlation in VAR residuals and the VAR dynamics must be adjusted accordingly. Otherwise, a naive application of the CEV procedure would misrepresent the data's variance.

Suggested Citation

  • Elmar Mertens, 2008. "Are Spectral Estimators Useful for Implementing Long-Run Restrictions in SVARs?," Working Papers 08.01, Swiss National Bank, Study Center Gerzensee.
    • Handle: RePEc:szg:worpap:0801
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    Cited by:

    1. Christopher J. Gust & Robert J. Vigfusson, 2009. "The power of long-run structural VARs," International Finance Discussion Papers 978, Board of Governors of the Federal Reserve System (U.S.).
    2. Mertens, Elmar, 2012. "Are spectral estimators useful for long-run restrictions in SVARs?," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1831-1844.
    3. Kascha, Christian & Mertens, Karel, 2009. "Business cycle analysis and VARMA models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 267-282, February.

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