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Waggoner, Daniel F.
Zha, Tao
Year of Publication: 
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2000-8
Causal analysis in multiple equation models often revolves around the evaluation of the effects of an exogenous shift in a structural equation. When taking into account the uncertainty implied by the shape of the likelihood, we argue that how normalization is implemented matters for inferential conclusions around the maximum likelihood (ML) estimates of such effects. We develop a general method that eliminates the distortion of finite-sample inferences about these ML estimates after normalization. We show that our likelihood-preserving normalization always maintains coherent economic interpretations while an arbitrary implementation of normalization can lead to ill-determined inferential results.
Time-series analysis
Supply and demand
Demand for money
Money supply
Document Type: 
Working Paper

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