Structural Vector Autoregressions with Markov Switching: Combining conventional with statistical identification of shocks
Title: Structural Vector Autoregressions with Markov Switching: Combining conventional with statistical identification of shocks
Series/Number: EUI ECO; 2011/11
In structural vector autoregressive (SVAR) analysis a Markov regime switching (MS) property can be exploited to identify shocks if the reduced form error covariance matrix varies across regimes. Unfortunately, these shocks may not have a meaningful structural economic interpretation. It is discussed how statistical and conventional identifying information can be combined. The discussion is based on a VAR model for the US containing oil prices, output, consumer prices and a short-term interest rate. The sys- tem has been used for studying the causes of the early millennium economic slowdown based on traditional identification with zero and long-run restric- tions and using sign restrictions. We find that previously drawn conclusions are questionable in our framework.
Subject: Vector autoregressive model; Markov process; EM algorithm; impulse responses; C32
Type of Access: openAccess