Are the shocks obtained from SVAR fundamental?

Mehdi Hamidi Sahneh ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides new conditions under which the shocks recovered from the estimates of structural vector autoregressions are fundamental. I prove that the Wold innovations are unpredictable if and only if the model is fundamental. I propose a test based on a generalized spectral density to check the unpredictability of the Wold innovations. The test is applied to study the dynamic effects of government spending on economic activity. I find that standard SVAR models commonly employed in the literature are non-fundamental. Moreover, I formally show that introduction of a narrative variable that measures anticipation restores fundamentalness.

Keywords: Fundamentalness; Identification; Invertible Moving Average; Vector Autoregressive (search for similar items in EconPapers)
JEL-codes: C32 C5 E62 (search for similar items in EconPapers)
Date: 2015-06-15
New Economics Papers: this item is included in nep-ban, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:65126

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