Econometric Analysis of Structural Systems with Permanent and Transitory Shocks

No 2008-04, Discussion Papers from School of Economics, The University of New South Wales

Abstract: This paper considers the implications of the permanent/transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock. It provides a simple and intuitive generalization of the influential work of Blanchard and Quah (1989), and shows that structural equations with known permanent shocks can not contain error correction terms, thereby freeing up the latter to be used as instruments in estimating their parameters. The approach is illustrated by a re-examination of the identification schemes used by Wickens and Motto (2001), Shapiro and Watson (1988), King, Plosser, Stock, Watson (1991), Gali (1992, 1999) and Fisher (2006).

Keywords: Permanent shocks; structural identification; error correction models; IS-LM models (search for similar items in EconPapers)
JEL-codes: C30 C32 E10 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-03
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-mac
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Citations: View citations in EconPapers (78)

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Journal Article: Econometric analysis of structural systems with permanent and transitory shocks (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:swe:wpaper:2008-04

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