Identification in Structural Vector Autoregressive Models with Structural Changes, with an Application to US Monetary Policy

Emanuele Bacchiocchi; Luca Fanelli

doi:10.1111/obes.12092

journal article Feb 20, 2015

Identification in Structural Vector Autoregressive Models with Structural Changes, with an Application to US Monetary Policy

Emanuele Bacchiocchi Luca Fanelli

Oxford Bulletin of Economics and Statistics Vol. 77 No. 6 pp. 761-779 · Wiley

View at Publisher Save 10.1111/obes.12092

Abstract

AbstractA growing line of research makes use of structural changes and different volatility regimes found in the data in a constructive manner to improve the identification of structural parameters in structural vector autoregressions (SVARs). A standard assumption made in the literature is that the reduced form unconditional error covariance matrix varies while the structural parameters remain constant. Under this hypothesis, it is possible to identify the SVAR without needing to resort to additional restrictions. With macroeconomic data, the assumption that the transmission mechanism of the shocks does not vary across volatility regimes is debatable. We derive novel necessary and sufficient rank conditions for local identification of SVARs, where both the error covariance matrix and the structural parameters are allowed to change across volatility regimes. Our approach generalizes the existing literature on ‘identification through changes in volatility’ to a broader framework and opens up interesting possibilities for practitioners. An empirical illustration focuses on a small monetary policy SVAR of the US economy and suggests that monetary policy has become more effective at stabilizing the economy since the 1980s.

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39

Citations

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References

Details

Published: Feb 20, 2015
Vol/Issue: 77(6)
Pages: 761-779
License: View

Authors

E

Emanuele Bacchiocchi

Department of Economics Management and Quantitative Methods University of Milan Milan Italy

L

Luca Fanelli

Department of Statistical Sciences and School of Economics Management and Statistics University of Bologna Bologna Italy

Funding

Ministero dell’Istruzione, dell’Università e della Ricerca Award: PRIN‐2010/2011

Università di Bologna

Cite This Article

Emanuele Bacchiocchi, Luca Fanelli (2015). Identification in Structural Vector Autoregressive Models with Structural Changes, with an Application to US Monetary Policy. Oxford Bulletin of Economics and Statistics, 77(6), 761-779. https://doi.org/10.1111/obes.12092

Identification in Structural Vector Autoregressive Models with Structural Changes, with an Application to US Monetary Policy

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