Identification of structural vector autoregressions by stochastic volatility

Dominik Bertsche () and Robin Braun
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Dominik Bertsche: University of Konstanz

No 869, Bank of England working papers from Bank of England

Abstract: We propose to exploit stochastic volatility for statistical identification of structural vector autoregressive models (SV-SVAR). We discuss full and partial identification of the model and develop efficient Expectation Maximization algorithms for Maximum Likelihood inference. Simulation evidence suggests that, compared to alternative models, the SV-SVAR works well in identifying structural parameters also under misspecification of the variance process. We apply the model to study the importance of oil supply shocks for driving oil prices. Since shocks identified by heteroskedasticity may not be economically meaningful, we exploit the framework to test instrumental variable restrictions which are overidentifying in the heteroskedastic model. Our findings suggest that conventional supply shocks are negligible drivers of oil prices, while news shocks about future supply account for almost all the variation.

Keywords: Structural vector autoregression (SVAR); identification via heteroskedasticity; stochastic volatility; external instruments. (search for similar items in EconPapers)
JEL-codes: C32 Q43 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2020-06-05
New Economics Papers: this item is included in nep-ene and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Identification of Structural Vector Autoregressions by Stochastic Volatility (2022)
Working Paper: Identification of Structural Vector Autoregressions by Stochastic Volatility (2018)
Working Paper: Identification of Structural Vector Autoregressions by Stochastic Volatility (2018)
Working Paper: Identification of Structural Vector Autoregressions by Stochastic Volatility (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0869

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