Max-Share Misidentification

Liyu Dou (), Paul Ho and Thomas A. Lubik ()
Additional contact information
Thomas A. Lubik: FRB

No 13-2024, Economics and Statistics Working Papers from Singapore Management University, School of Economics

Abstract: Max-share identification relies on a decomposition of the forecast error variance (FEV) over a target horizon. Consequently, it often conflates multiple shocks because the contribution to the FEV depends on the impulse responses at untargeted horizons and the shapes of the responses to untargeted shocks. We alleviate the issues using a socalled “single horizon” alternative that focuses narrowly on the actual target horizon. We characterize the identified shock in terms of true structural shocks in the single horizon problem and show that this typically bounds results in the literature’s usual implementation. Using a numerical demand and supply example and an empirical news shock application, we show that the traditional max-share approach inadvertently places weight on untargeted transitory shocks, a problem that the single horizon approach avoids.

Pages: 30 pages
Date: 2024-09-01
New Economics Papers: this item is included in nep-ecm and nep-sea
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ink.library.smu.edu.sg/soe_research/2796/ Full text (text/html)

Related works:
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:ris:smuesw:2024_013

Access Statistics for this paper

More papers in Economics and Statistics Working Papers from Singapore Management University, School of Economics 90 Stamford Road, Sigapore 178903. Contact information at EDIRC.
Bibliographic data for series maintained by Cheong Pei Qi ( this e-mail address is bad, please contact ).