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When is Nonfundamentalness in SVARs a Real Problem?

Portier, F; Beaudry, P; Fève, P; Guay, A; (2019) When is Nonfundamentalness in SVARs a Real Problem? Review of Economic Dynamics , 34 pp. 221-243. 10.1016/j.red.2019.03.011. Green open access

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Abstract

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.

Type: Article
Title: When is Nonfundamentalness in SVARs a Real Problem?
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.red.2019.03.011
Publisher version: https://doi.org/10.1016/j.red.2019.03.011
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: NonFundamentalness, Business cycles, SVARs, News shocks
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10071934
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