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dc.contributor.authorHannsgen, Gregen
dc.date.accessioned2012-04-12T14:18:45Z-
dc.date.available2012-04-12T14:18:45Z-
dc.date.issued2010-
dc.identifier.urihttp://hdl.handle.net/10419/57001-
dc.description.abstractThe 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
dc.language.isoengen
dc.publisher|aLevy Economics Institute of Bard College |cAnnandale-on-Hudson, NYen
dc.relation.ispartofseries|aWorking Paper |x596en
dc.subject.jelC32en
dc.subject.jelC46en
dc.subject.jelE30en
dc.subject.jelE52en
dc.subject.ddc330en
dc.subject.keywordstructural vector autoregressionen
dc.subject.keywordVARen
dc.subject.keywordLévy-stable distributionen
dc.subject.keywordinfinite varianceen
dc.subject.keywordmonetary policy shocksen
dc.subject.keywordheavy-tailed error termsen
dc.subject.keywordfactorizationen
dc.subject.keywordimpulse response functionen
dc.subject.keywordtransformability problemen
dc.titleInfinite-variance, alpha-stable shocks in monetary SVAR-
dc.typeWorking Paperen
dc.identifier.ppn629688354en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen

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