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Statistical identification in SVARs - Monte Carlo experiments and a comparative assessment of the role of economic uncertainties for the US business cycle

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  • Herwartz, Helmut
  • Lange, Alexander
  • Maxand, Simone
Abstract
Structural vector autoregressive analysis aims to trace the contemporaneous linkages among (macroeconomic) variables back to underlying orthogonal structural shocks. In homoskedastic Gaussian models the identification of these linkages deserves external and typically notdata-based information. Statistical data characteristics (e.g, heteroskedasticity or non-Gaussian independent components) allow for unique identification. Studying distinct covariance changes and distributional frameworks, we compare alternative data-driven identification procedures and identification by means of sign restrictions. The application of sign restrictions results in estimation biases as a reflection of censored sampling from a space of covariance decompositions. Statistical identification schemes are robust under distinct data structures to some extent. The detection of independent components appears most flexible unless the underlying shocks are (close to) Gaussianity. For analyzing linkages among the US business cycle and distinct sources of uncertainty we benefit from simulation-based evidence to point at two most suitable identification schemes. We detect a unidirectional effect of financial uncertainty on real economic activity and mutual causality between macroeconomic uncertainty and business cycles.

Suggested Citation

  • Herwartz, Helmut & Lange, Alexander & Maxand, Simone, 2019. "Statistical identification in SVARs - Monte Carlo experiments and a comparative assessment of the role of economic uncertainties for the US business cycle," University of Göttingen Working Papers in Economics 375, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:375
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    Cited by:

    1. Lee, Adam & Mesters, Geert, 2024. "Locally robust inference for non-Gaussian linear simultaneous equations models," Journal of Econometrics, Elsevier, vol. 240(1).
    2. Dalheimer, Bernhard & Herwartz, Helmut & Lange, Alexander, 2021. "The threat of oil market turmoils to food price stability in Sub-Saharan Africa," Energy Economics, Elsevier, vol. 93(C).
    3. Herwartz, Helmut & Rohloff, Hannes & Wang, Shu, 2020. "Proxy SVAR identification of monetary policy shocks: MonteCarlo evidence and insights for the US," University of Göttingen Working Papers in Economics 404, University of Goettingen, Department of Economics.
    4. Herwartz, Helmut & Rohloff, Hannes & Wang, Shu, 2022. "Proxy SVAR identification of monetary policy shocks - Monte Carlo evidence and insights for the US," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).

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    More about this item

    Keywords

    independent components; heteroskedasticity; model selection; non-Gaussianity; structural shocks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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