Identifying Factor-Augmented Vector Autoregression Models via Changes in Shock Variances

Yohei Yamamoto and 庸平 山本

No HIAS-E-72, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University

Abstract: We propose a new method for the structural identification of a dynamic causal relationship in factor-augmented vector autoregression models based on changes in the unconditional shock variances that occur on a historical date. The proposed method can incorporate both observed and unobserved factors in the structural vector autoregression system and it allows the contemporaneous matrix to be fully unrestricted. We derive the asymptotic distribution of the impulse response estimator and consider a bootstrap inference method. Monte Carlo experiments show that the proposed method is robust to the misspecification of the contemporaneous matrix unlike the existing methods. Both the asymptotic and bootstrap methods obtain a satisfactory coverage rate when the shock of an observed factor is studied, although the latter is more accurate when the shock of an unobserved factor is considered. An empirical example based on the same data employed by Bernanke et al. (2005) provides similar point estimates and somewhat wider confidence intervals, thereby supporting their identification strategy.

Keywords: dynamic casual effect; factor-augmented vector autoregression; identification through heteroskedasticity; impulse response (search for similar items in EconPapers)
JEL-codes: C14 C22 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2018-08
New Economics Papers: this item is included in nep-ecm, nep-int and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/29389/070_hiasDP-E-72.pdf

Related works:
Journal Article: Identifying factor‐augmented vector autoregression models via changes in shock variances (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:hiasdp:hias-e-72

Access Statistics for this paper

More papers in Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Digital Resources Section, Hitotsubashi University Library ().