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Sufficient information in structural VARs

Mario Forni () and Luca Gambetti ()

Journal of Monetary Economics, 2014, vol. 66, issue C, 124-136

Abstract: Necessary and sufficient conditions under which a VAR contains sufficient information to estimate the structural shocks are derived. On the basis of this theoretical result we propose two simple tests to detect informational deficiency and a procedure to amend a deficient VAR. A simulation based on a DSGE model with fiscal foresight suggests that our method correctly identifies and fixes the informational problem. In an empirical application, we show that a bivariate VAR including unemployment and labor productivity is informationally deficient. Once the relevant information is included into the model, technology shocks appear to be contractionary.

Keywords: Non-fundamentalness; FAVAR models; ABCD representation (search for similar items in EconPapers)
Date: 2014
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