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  • Istituto di Economia
  • Seminario

Common Components Structural VARs

Date From 06.07.2022 time
End Date To 06.07.2022 time
Address

Via S. Cecilia 3 / Via S. Francesco 72-88 , 56127 Italy

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The Institute of Economics will hold a seminar meeting as part of its Seminar Series on Wednesday, July 6, 2022: Marco Lippi from the Einaudi Institute for Economics and Finance (Rome) will present the paper "Common Components Structural VARs".

 

Abstract

Small scale VAR models are subject to two major issues: first, the information set might be too narrow; second, many macroeconomic variables are measured with error. The two features produce distorted estimates of the impulse response functions. We propose a new procedure, called Common Components Structural VARs (CC-SVAR), which solves both problems. It consists in (a) treating the variables, prior to estimation, in order 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 the fundamentalness problem. SVARs and CC-SVARs are compared in the empirical analysis of monetary policy and technology shocks. The results obtained by SVARs are not robust, in that they strongly depend on the choice and the treatment of the variables considered. On the contrary, using CC- SVARs (i) contractionary monetary shocks produce a decrease of prices independently of the variables included in the model, (ii) irrespective of whether hours worked enter the model in log-levels or growth rates, technology improvements produce an increase in hours worked.

The seminar will be held in blended mode. In person participation is possible and available seats are allocated on a first come first served basis. For online participation please use the following link.