Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311786 
Year of Publication: 
2024
Series/Report no.: 
Document de travail No. 2024-06
Publisher: 
Université du Québec à Montréal, École des sciences de la gestion (ESG UQAM), Département des sciences économiques, Montréal
Abstract: 
This paper examines the implications of using VARs in levels under the Max Share identification approach when variables exhibit unit or near-unit roots. We derive the asymptotic distributions of the Max Share estimator, demonstrating that it converges to a random matrix, resulting in inconsistent reduced-form impulse responses and eigenvector estimates for structural shock identification. Monte Carlo simulations highlight that VAR models in levels can exhibit significant bias and higher RMSEs at intermediate and long horizons compared to stationary representations (e.g., first-difference VARs or VECMs), particularly in the presence of multiple permanent shocks. An empirical application focusing on investment-specific technology and TFP news shocks underscores the sensitivity of results to the nonstationarity of variables and the identification order of structural shocks when using VARs in levels.
Subjects: 
SVARs
Max Share identification and inference
Unit roots
Near-unit roots and Asymptotics
JEL: 
E32
C32
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.