Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/285367 
Year of Publication: 
2022
Series/Report no.: 
CFS Working Paper Series No. 687
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
Abstract: 
A common practice in empirical macroeconomics is to examine alternative recursive orderings of the variables in structural vector autogressive (VAR) models. When the implied impulse responses look similar, the estimates are considered trustworthy. When they do not, the estimates are used to bound the true response without directly addressing the identification challenge. A leading example of this practice is the literature on the effects of uncertainty shocks on economic activity. We prove by counterexample that this practice is invalid in general, whether the data generating process is a structural VAR model or a dynamic stochastic general equilibrium model.
Subjects: 
Cholesky decomposition
orthogonalization
simultaneity
endogeneity
uncertainty
business cycle
JEL: 
C32
C51
E32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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