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Freie Universität Bozen

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Kontakt Sabine Zanin
Sabine.Zanin@unibz.it

05 Nov 2020 12:30-13:30

research seminar: Common Components Structural VARs

Luca Gambetti, Associate Professor of Economics, Universitat Autonoma de Barcelona

Standort Online-Event

Dienststellen Press and Events

Kontakt Sabine Zanin
Sabine.Zanin@unibz.it

abstract: Small scale VAR modelsare subject to two major issues: first, the information set might be toonarrow; second, many macroeconomic variables are measured with error. The two featuresproduce distorted estimates of the impulse response functions. We propose a newprocedure, called Common Components Structural VARs (CC-SVAR), which solves bothproblems. It consists in (a) treating the variables, prior to estimation, inorder to extract their common components; this eliminates measurement errors;(b) estimating a VAR with m > q common components, that is a singular VAR,where q is the number of shocks driving the economy; this solves thefundamentalness problem. SVARs and CC-SVARs are compared in the empiricalanalysis of monetary policy and technology shocks. The results obtained bySVARs are not robust, in that they strongly depend on the choice and thetreatment of the variables considered. On the contrary, using CCSVARs (i)contractionary monetary shocks produce a decrease of prices independently of thevariables included in the model, (ii) irrespective of whether hours workedenter the model in log-levels or growth rate, technology improvements producean increase in hours worked.

 

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