Identification of dynamic economic models from reduced form VECM structures: an application of covariance restrictions

Robert Rasche

No 2000-011, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This analysis is a straightforward implementation of both long-run and short-run identifying or overidentifying restrictions on a vector error correction model in the \"structural VAR\" framework. The framework utilizes covariance restrictions, long-run multiplier restrictions, error correction coefficient restrictions, and restrictions on slope coefficients of the stimultaneous interactions in the \"economic model.\" The framework is general enough to incorporate restrictions on impact multipliers. Two examples are provided. The first example is a dynamic M2 demand specification with a comparison to previous results that are constructed using restrictions on distributed lag coefficients to achieve identification. The second example illustrates the identification of equilibrium short-term and long-term interest responses of money demand using error-correction coefficient restrictions when the individual coefficients are underidentified in the cointegrating vectors in the presence of stationary interest rate spreads.

Keywords: Econometric models; Demand for money (search for similar items in EconPapers)
Date: 2001
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