Identification and estimation of structural vector autoregressive models via LU decomposition

Masato Shimokawa and Kou Fujimori

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Abstract: Structural vector autoregressive (SVAR) models are widely used to analyze the simultaneous relationships between multiple time-dependent data. Various statistical inference methods have been studied to overcome the identification problems of SVAR models. However, most of these methods impose strong assumptions for innovation processes such as the uncorrelation of components. In this study, we relax the assumptions for innovation processes and propose an identification method for SVAR models under the zero-restrictions on the coefficient matrices, which correspond to sufficient conditions for LU decomposition of the coefficient matrices of the reduced form of the SVAR models. Moreover, we establish asymptotically normal estimators for the coefficient matrices and impulse responses, which enable us to construct test statistics for the simultaneous relationships of time-dependent data. The finite-sample performance of the proposed method is elucidated by numerical simulations. We also present an example of an empirical study that analyzes the impact of policy rates on unemployment and prices.

Date: 2025-03
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2503.12378

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