The efficient market hypothesis and identification in structural VARs

Lucio Sarno and Daniel Thornton

No 2003-032, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Structural vector autoregression (SVAR) models are commonly used to investigate the effect of structural shocks on economic variables. The identifying restrictions imposed in many of these exercises have been criticized in the literature. This paper extends this literature by showing that if the SVAR includes one or more variables that are efficient in the strong form of the efficient market hypothesis, the identifying restrictions frequently imposed in SVARs cannot be satisfied. We argue that our analysis will likely apply to VARs that include variables that are consistent with the weaker form of the efficient market hypothesis, especially when the data are measured at the monthly or quarterly frequencies, as is frequently the case.

Keywords: Macroeconomics; Econometric models (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-ets, nep-fin and nep-mac
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Published in Federal Reserve Bank of St. Louis Review, January/February 2004, 86(1), pp. 49-60

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Journal Article: The efficient market hypothesis and identification in structural VARs (2004)
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DOI: 10.20955/wp.2003.032

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