Recoverability and Expectations-Driven Fluctuations

Ryan Chahrour and Kyle Jurado

The Review of Economic Studies, 2022, vol. 89, issue 1, 214-239

Abstract: Time series methods for identifying structural economic disturbances often require disturbances to satisfy technical conditions that can be inconsistent with economic theory. We propose replacing these conditions with a less restrictive condition called recoverability, which only requires that the disturbances can be inferred from the observable variables. As an application, we show how shifting attention to recoverability makes it possible to construct new identifying restrictions for technological and expectational disturbances. In a vector autoregressive example using post-war U.S. data, these restrictions imply that independent disturbances to expectations about future technology are a major driver of business cycles.

Keywords: Recoverability; Non-fundamentalness; Expectations; Business cycles; E32; D84; C32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:89:y:2022:i:1:p:214-239.

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