Common Component Structural VARs

Mario Forni, Luca Gambetti, Marco Lippi and Luca Sala

No 15529, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Structural VAR models produce results that can vary dramatically with the choice of variables, because information is deficient and/or contaminated by measured errors. We propose a novel procedure, the Common Component SVAR (CC-SVAR), which solves both problems. First, the common components of the variables of interest are estimated using High-Dimensional Factor techniques. Second, SVAR analysis is performed using such components. The key feature is that number of common components is larger than the number of shocks, so that the SVAR is singular. Consistency results for singular VARs are provided. We apply our procedure to monetary policy shocks. Our finding is that, with the CC-SVAR, results are robust and SVAR puzzles disappear.

Keywords: Structural var models; Structural factor models; Nonfundamentalness (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Common Components Structural VARs (2020)
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