 On weak identification in structural VARMA modelsWenying Yao, Timothy Kam and Farshid Vahid Economics Letters, 2017, vol. 156, issue C, 1-6 Abstract: We simulate synthetic data from known data generating processes (DGPs) that arise from economic theory, and compare the performance of fitted VAR and VARMA models in estimating the true impulse responses to structural shocks. We show that while the VARMA structures implied by these DGPs are theoretically identified and lead to precise estimates of impulse responses given enough data, their parameters are close to the non-identified ridge in the parameter space, and that makes precise estimation of the impulse responses in small samples typical of macroeconomic data improbable. As a result, VARMA models barely show any advantage over VARs in characterizing the known DGPs in small samples. This is a refinement of the conjecture that near non-stationarity, near non-invertibility or weak identification could be possible reasons for the failure of structural VARMA models in providing good estimates of theoretical impulse responses of particular DSGE models. Keywords: VARMA; VAR; DSGE; Impulse response analysis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:156:y:2017:i:c:p:1-6 DOI: 10.1016/j.econlet.2017.03.035 Access Statistics for this article Economics Letters is currently edited by Economics Letters Editorial Office More articles in Economics Letters from Elsevier |
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