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date: 18 April 2024

Shocks, Information, and Structural VARslocked

Shocks, Information, and Structural VARslocked

  • Luca GambettiLuca GambettiBarcelona Graduate School of Economics, Autonomous University of Barcelona; Collegio Carlo Alberto, University of Turin

Summary

Structural Vector Autoregressions (SVARs) have become one of the most popular tools to measure the effects of structural economic shocks. Several new techniques to “identify” economic shocks have been proposed in the literature in the last decades. Identification hinges on the implicit assumption that economic shocks are retrievable from the data. In other words, the data contain enough information to correctly estimate the shocks. SVAR models, however, are small-scale models, only a small number of variables can be handled, and this feature can forcefully limit the amount of information that variables can convey. Narrow information sets present problems for identification, but some theoretical results and empirical procedures can test whether such information is sufficient to estimate economic shocks. Additionally, there are possible solutions to the problem of limited information, such as Factor Augmented VAR or dynamic rotations.

Subjects

  • Macroeconomics and Monetary Economics

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