Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/172829
Authors: 
Lütkepohl, Helmut
Woźniak, Tomasz
Year of Publication: 
2017
Series/Report no.: 
DIW Discussion Papers 1707
Abstract: 
In order to identify structural shocks that affect economic variables, restrictions need to be imposed on the parameters of structural vector autoregressive (SVAR) models. Economic theory is the primary source of such restrictions. However, only over-identifying restrictions can be tested with statistical methods which limits the statistical validation of many just-identified SVAR models. In this study, Bayesian inference is developed for SVAR models in which the structural parameters are identified via Markov-switching heteroskedasticity. In such a model, restrictions that are just-identifying in the homoskedastic case, become over-identifying and can be tested. A set of parametric restrictions is derived under which the structural matrix is globally identified and a Savage-Dickey density ratio is used to assess the validity of the identification conditions. For that purpose, a new probability distribution is defined that generalizes the beta, F, and compound gamma distributions. As an empirical example, monetary models are compared using heteroskedasticity as an additional device for identification. The empirical results support models with money in the interest rate reaction function.
Subjects: 
identification through heteroskedasticity
Markov-Switching models
Savage-Dickey Density Ratio
monetary policy shocks
Divisia Money
JEL: 
C11
C12
C32
E32
Document Type: 
Working Paper

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