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Working Papers, Levy Economics Institute of Bard College >
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http://hdl.handle.net/10419/57001
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Full metadata record
| DC Field | | Value | | Language |
| dc.contributor.author | | Hannsgen, Greg | | en_US |
| dc.date.accessioned | | 2012-04-12T14:18:45Z | | - |
| dc.date.available | | 2012-04-12T14:18:45Z | | - |
| dc.date.issued | | 2010 | | en_US |
| dc.identifier.uri | | http://hdl.handle.net/10419/57001 | | - |
| dc.description.abstract | | The process of constructing impulse-response functions (IRFs) and forecast-error variance decompositions (FEVDs) for a structural vector autoregression (SVAR) usually involves a factorization of an estimate of the error-term variance-covariance matrix V. Examining residuals from a monetary VAR, this paper finds evidence suggesting that all of the variances in V are infinite. Specifically, this study estimates alpha-stable distributions for the reducedform error terms. The ML estimates of the residuals' characteristic exponents » range from 1.5504 to 1.7734, with the Gaussian case lying outside 95 percent asymptotic confidence intervals for all six equations of the VAR. Variance-stabilized P-P plots show that the estimated distributions fit the residuals well. Results for subsamples are varied, while GARCH(1,1) filtering yields standardized shocks that are also all likely to be non-Gaussian alpha stable. When one or more error terms have infinite variance, V cannot be factored. Moreover, by Proposition 1, the reduced-form DGP cannot be transformed, using the required nonsingular matrix, into an appropriate system of structural equations with orthogonal, or even finite-variance, shocks. This result holds with arbitrary sets of identifying restrictions, including even the null set. Hence, with one or more infinite-variance error terms, structural interpretation of the reduced-form VAR within the standard SVAR model is impossible. | | en_US |
| dc.language.iso | | eng | | en_US |
| dc.publisher | | Levy Economics Inst. Annandale-on-Hudson, NY | | en_US |
| dc.relation.ispartofseries | | Working paper, Levy Economics Institute 596 | | en_US |
| dc.subject.jel | | C32 | | en_US |
| dc.subject.jel | | C46 | | en_US |
| dc.subject.jel | | E30 | | en_US |
| dc.subject.jel | | E52 | | en_US |
| dc.subject.ddc | | 330 | | en_US |
| dc.subject.keyword | | structural vector autoregression | | en_US |
| dc.subject.keyword | | VAR | | en_US |
| dc.subject.keyword | | Lévy-stable distribution | | en_US |
| dc.subject.keyword | | infinite variance | | en_US |
| dc.subject.keyword | | monetary policy shocks | | en_US |
| dc.subject.keyword | | heavy-tailed error terms | | en_US |
| dc.subject.keyword | | factorization | | en_US |
| dc.subject.keyword | | impulse response function | | en_US |
| dc.subject.keyword | | transformability problem | | en_US |
| dc.title | | Infinite-variance, alpha-stable shocks in monetary SVAR | | en_US |
| dc.type | | Working Paper | | en_US |
| dc.identifier.ppn | | 629688354 | | en_US |
| dc.rights | | http://www.econstor.eu/dspace/Nutzungsbedingungen | | en_US |
| Appears in Collections: | | Working Papers, Levy Economics Institute of Bard College
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