A method to generate structural impulse-responses for measuring the effects of shocks in structural macro models

Andreas Beyer () and Roger E. A. Farmer ()

No 586, Working Paper Series from European Central Bank

Abstract: We develop a technique for analyzing the response dynamics of economic variables to structural shocks in linear rational expectations models. Our work differs from standard SVARs since we allow expectations of future variables to enter structural equations. We show how to estimate the variance-covariance matrix of fundamental and non-fundamental shocks and we construct point estimates and confidence bounds for impulse response functions. Our technique can handle both determinate and indeterminate equilibria. We provide an application to U.S. monetary policy under pre and post Volcker monetary policy rules. JEL Classification: C39; C62; D51; E52; E58.

Keywords: Identification; indeterminacy; rational expectations models. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2006-02
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