Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/57015
Authors: 
Hannsgen, Greg
Year of Publication: 
2011
Series/Report no.: 
Working paper, Levy Economics Institute 682
Abstract: 
This paper adumbrates a theory of what might be going wrong in the monetary SVAR literature and provides supporting empirical evidence. The theory is that macroeconomists may be attempting to identify structural forms that do not exist, given the true distribution of the innovations in the reduced-form VAR. The paper shows that this problem occurs whenever (1) some innovation in the VAR has an infinite-variance distribution and (2) the matrix ofcoefficients on the contemporaneous terms in the VAR's structural form is nonsingular. Since (2) is almost always required for SVAR analysis, it is germane to test hypothesis (1). Hence, in this paper, we fit a-stable distributions to VAR residuals and, using a parametric-bootstrap method, test the hypotheses that each of the error terms has finite variance.
Subjects: 
vector autoregression
Lévy-stable distribution
infinite variance
monetary policy shocks
heavy-tailed error terms
factorization
impulse-response function
JEL: 
C32
C46
C50
E30
E52
Document Type: 
Working Paper

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