Structural vector autoregressions with Markov switching: Combining conventional with statistical identification of shocks |
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Authors: | Helmut Herwartz,Helmut Lü tkepohl |
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Affiliation: | 1. Department of Economics, Georg-August-University, Platz der Göttinger Sieben 5, D-37073 Göttingen, Germany;2. Department of Economics, Freie Universität Berlin and DIW Berlin, Mohrenstr. 58, D-10117 Berlin, Germany |
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Abstract: | In structural vector autoregressive (SVAR) analysis a Markov regime switching (MS) property can be exploited to identify shocks if the reduced form error covariance matrix varies across regimes. Unfortunately, these shocks may not have a meaningful structural economic interpretation. It is discussed how statistical and conventional identifying information can be combined. The discussion is based on a VAR model for the US containing oil prices, output, consumer prices and a short-term interest rate. The system has been used for studying the causes of the early millennium economic slowdown based on traditional identification with zero and long-run restrictions and using sign restrictions. We find that previously drawn conclusions are questionable in our framework. |
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Keywords: | C32 |
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