Recoverability

Ryan Chahrour and Kyle Jurado ()
Additional contact information
Kyle Jurado: Duke University

No 935, Boston College Working Papers in Economics from Boston College Department of Economics

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.

Keywords: structural vector autoregression; noise shocks (search for similar items in EconPapers)
JEL-codes: C31 D84 E32 (search for similar items in EconPapers)
Date: 2017-11-01
New Economics Papers: this item is included in nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Recoverability (2018)
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