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Econometric analysis of stuctural systems with permanent and transitory shocks

Pagan, Adrian & Pesaran, M. Hashem (2008) Econometric analysis of stuctural systems with permanent and transitory shocks. Journal of Economic Dynamics and Control, 32(10), pp. 3376-3395.

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Abstract

This paper considers the implications of the permanent/transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock. It provides a simple and intuitive generalization of the influential work of Blanchard and Quah [1989. The dynamic effects of aggregate demand and supply disturbances. The American Economic Review 79, 655–673], and shows that structural equations with known permanent shocks cannot contain error correction terms, thereby freeing up the latter to be used as instruments in estimating their parameters. The approach is illustrated by a re-examination of the identification schemes used by Wickens and Motto [2001. Estimating shocks and impulse response functions. Journal of Applied Econometrics 16, 371–387], Shapiro and Watson [1988. Sources of business cycle fluctuations. NBER Macroeconomics Annual 3, 111–148], King et al. [1991. Stochastic trends and economic fluctuations. American Economic Review 81, 819–840], Gali [1992. How well does the ISLM model fit postwar US data? Quarterly Journal of Economics 107, 709–735; 1999. Technology, employment, and the business cycle: Do technology shocks explain aggregate fluctuations? American Economic Review 89, 249–271] and Fisher [2006. The dynamic effects of neutral and investment-specific technology shocks. Journal of Political Economy 114, 413–451].

Impact and interest:

16 citations in Scopus
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17 citations in Web of Science®

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ID Code: 30858
Item Type: Journal Article
Keywords: permanent shocks, structual identification, error correction models, IS-LM models
DOI: 10.1016/j.jedc.2008.01.006
ISSN: 0165-1889
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Macroeconomics (incl. Monetary and Fiscal Theory) (140212)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300) > Economic Models and Forecasting (140303)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300) > Time-Series Analysis (140305)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Deposited On: 12 Feb 2010 22:49
Last Modified: 29 Feb 2012 23:44

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