When is Nonfundamentalness in VARs A Real Problem? An Application to News Shocks
Franck Portier (),
Paul Beaudry,
Patrick Fève and
Alain Guay
No 10763, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
When a structural model has a nonfundamental VAR representation, standard SVAR techniques cannot be used to properly identify the effects of structural shocks. This problem is known to potentially arise when one of the structural shocks represents news about the future. However, as we shall show, in many cases the nonfundamental representation of a time series may be very close to its fundamental representation implying that standard SVAR techniques may provide a very good approximation of the effects of structural shocks even when the nonfundamentalness is formally present. This leads to the question: When is nonfundamentalness a real problem? In this paper we derive and illustrate a diagnostic based on a R2 which provides a simple means of detecting whether nonfundamentalness is likely to be a quantitatively important problem in an applied settings. We use the identification of technological news shocks in US data as our running example.
Keywords: Business cycles; News; Nonfundamentalness; Svar (search for similar items in EconPapers)
JEL-codes: E3 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)
Downloads: (external link)
https://cepr.org/publications/DP10763 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Working Paper: When is Nonfundamentalness in VARs a Real Problem? An Application to News Shocks (2015) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:10763
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP10763
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().