Structural vector autoregressions with Markov switching: Combining conventional with statistical identification of shocks
Helmut Herwartz and
Helmut Lütkepohl ()
Journal of Econometrics, 2014, vol. 183, issue 1, 104-116
In structural vector autoregressive (SVAR) analysis a Markov regime switching (MS) property can be exploited to identify shocks if the reduced form error covariance matrix varies across regimes. Unfortunately, these shocks may not have a meaningful structural economic interpretation. It is discussed how statistical and conventional identifying information can be combined. The discussion is based on a VAR model for the US containing oil prices, output, consumer prices and a short-term interest rate. The system has been used for studying the causes of the early millennium economic slowdown based on traditional identification with zero and long-run restrictions and using sign restrictions. We find that previously drawn conclusions are questionable in our framework.
Keywords: Vector autoregressive model; Markov process; EM algorithm; Impulse responses (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
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Working Paper: Structural Vector Autoregressions with Markov Switching: Combining Conventional with Statistical Identification of Shocks (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:183:y:2014:i:1:p:104-116
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