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When is Nonfundamentalness in SVARs A Real Problem?

Beaudry, Paul, Fève, Patrick, Guay, Alain and Portier, Franck (2019) When is Nonfundamentalness in SVARs A Real Problem? Review of Economic Dynamics, vol. 34. pp. 221-243.

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In SVARs, identification of structural shocks can be subject to nonfundamentalness, as the econometrician may have an information set smaller than the economic agents’ one. How serious is that problem from a quantitative point of view? In this paper we propose a simple diagnostic for the quantitative importance of nonfundamentalness in structural VARs. The diagnostic is of interest as nonfundamentalness is not an either/or question, and its quantitative implications can be more or less severe. As an illustration, we apply our diagnostic to the identification of TFP news shocks and we find that nonfundamentalness is of little quantitatively importance in that context.

Item Type: Article
Language: English
Date: October 2019
Refereed: Yes
Uncontrolled Keywords: NonFundamentalness, Business Cycles, SVARs, News Shocks
JEL Classification: C32 - Time-Series Models
E32 - Business Fluctuations; Cycles
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Apr 2020 09:32
Last Modified: 16 Dec 2020 14:56
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