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On weak identification in structural VARMA models

Citation

Yao, W and Kam, T and Vahid, F, On weak identification in structural VARMA models, Economics Letters, 156 pp. 1-6. ISSN 0165-1765 (2017) [Refereed Article]


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DOI: doi:10.1016/j.econlet.2017.03.035

Abstract

We simulate synthetic data from known data generating processes (DGPs) that arise from economic theory, and compare the performance of fitted VAR and VARMA models in estimating the true impulse responses to structural shocks. We show that while the VARMA structures implied by these DGPs are theoretically identified and lead to precise estimates of impulse responses given enough data, their parameters are close to the non-identified ridge in the parameter space, and that makes precise estimation of the impulse responses in small samples typical of macroeconomic data improbable. As a result, VARMA models barely show any advantage over VARs in characterizing the known DGPs in small samples. This is a refinement of the conjecture that near non-stationarity, near non-invertibility or weak identification could be possible reasons for the failure of structural VARMA models in providing good estimates of theoretical impulse responses of particular DSGE models.

Item Details

Item Type:Refereed Article
Research Division:Economics
Research Group:Applied Economics
Research Field:Economic Development and Growth
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Savings and Investments
Author:Yao, W (Dr Wenying Yao)
ID Code:122277
Year Published:2017
Deposited By:Tasmanian School of Business and Economics
Deposited On:2017-11-08
Last Modified:2017-11-08
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