Idiosyncratic shocks: a new procedure for identifying shocks in a VAR with application to the New Keynesian model

Michael R. Wickens

No 13613, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A key issue in VAR analysis is how best to identify economic shocks. The paper discusses the problems that the standard methods pose and proposes a new type of shock. Named an idiosyncratic shock, it is designed to identify the component in each VAR residual associated with the corresponding VAR variable. The procedure is applied to a calibrated New Keynesian model and to a VAR based on the same variables and using US data. The resulting impulse response functions are compared with those from standard procedures.

Keywords: Var analysis; Macroeconomic shocks; New keynesian model (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-dge, nep-ecm and nep-mac
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