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Title:Fundamental problems with nonfundamental shocks PDF Logo
Authors:Lütkepohl, Helmut
Issue Date:2012
Series/Report no.:Discussion Papers, German Institute for Economic Research, DIW Berlin 1230
Abstract:Economic agents using information that is not incorporated in the econometric model is seen as a possible reason for why nonfundamental shocks are important in econometric models. Allowing for nonfundamental shocks in structural vector autoregressive (SVAR) analysis by considering moving average (MA) representations with roots in the complex unit circle is a possible response to the problem. A case is made for viewing nonfundamentalness as an omitted variables problem rather than a problem of MA roots in the unit circle. The omitted variables problem will always lurk in the background of SVAR analysis as well as other econometric studies and cannot be avoided. In SVAR analysis it is even more problematic than what the literature on nonfundamental shocks suggests. Still, SVARs can be useful tools for empirical analysis.
Subjects:Structural vector autoregression
moving average representation
vector autoregressive moving average process
impulse response analysis
factor augmented VAR
Bayesian VAR J
JEL:C32
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

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