Sufficient information in structural VARs

Mario Forni and Luca Gambetti

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: We derive necessary and sufficient conditions under which a set of variables is information-ally sufficient, i.e. contains enough information to estimate the structural shocks with a VAR model. Based on such conditions, we provide a procedure to test for informational sufficiency. If sufficiency is rejected, we propose a strategy to amend the VAR. Our method can be applied to FAVAR models and can be used to determine how many factors to include in such models. We apply our procedure to a VAR including TFP, unemployment and per-capita hours worked. We find that the three variables are not informationally sucient. When adding missing information, the effects of technology shocks change dramatically.

Keywords: Structural VAR; non-fundamentalness; information; FAVAR models; technology shocks (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Pages: pages 26
Date: 2011-06
New Economics Papers: this item is included in nep-cba and nep-ets
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Citations: View citations in EconPapers (23)

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Journal Article: Sufficient information in structural VARs (2014)
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