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When do long-run identifying restrictions give reliable results?

Jon Faust () and Eric Leeper

No 462, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Many recent papers have tried to identify behavioral disturbances in vector autoregressions (VAR's) by imposing restrictions on the long-run effects of shocks. This paper argues that this approach will support reliable structured inferences only if the underlying economy satisfies strong restrictions. Absent restrictions linking long-run and short-run dynamics, every decomposition of a VAR is essentially equally consistent with any long-run restriction. Further, dynamic common factor restrictions must hold if the scheme is to work properly in small models estimated using time-aggregated data. The paper illustrates possible consequences of failure of these assumptions using bivariate models to identify aggregate supply and demand disturbances.

Keywords: Econometrics (search for similar items in EconPapers)
Date: 1994
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Journal Article: When Do Long-Run Identifying Restrictions Give Reliable Results? (1997)
Working Paper: When do long-run identifying restrictions give reliable results? (1994) Downloads
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