Vector Autoregressions

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Timing Assumptions…• Identification Has to Come to Terms with Direction of CausationUnderlying Positive Correlation• Does it Reflect:1. Output Responding to Policy?2. Policy Responding to Output?3. Something in Between?• We adopt interpretation (2)• Choices (1) or (3) Imply:– Monetary Policy Induced Rise in R Drives Output Up– Standard Monetary Models Inconsistent With This Implication• Example: Presence of ambulances highly correlated withwounded people– Interpretation #1: ambulances cause people p to be hurt– Interpretation #2: hurt people cause ambulances to come to them– Tough to go far with interpretation #1; prefer #2
Result of Allowing Output toRespond to Policy• A rise in R induced by policy, e tR , produces arise in Y:• Seems difficult to build a theory around this
Page 1 and 2: Brief Review of VARsLawrence J. Chr
Page 3: Outline of SVAR discussion• What
Page 15 and 16: Identifying Monetary Policy Shocks
Page 17 and 18: What is a Monetary Policy Shock?•
Page 22 and 23: Long Run Identification of Technolo
Page 24 and 25: Identification• When monetary pol
Page 27: • We will now estimate impulse re
Page 36: Timing Assumptions• ‘Extreme’
Page 43 and 44: Historical Decomposition of Data•
Page 45 and 46: Type of technology shock that affec
Page 47 and 48: All three shocks together account f
Page 51 and 52: Fiscal Shocks• SVAR analysis of d
Page 53: Burnside, Eichenbaum and Fisher•
Page 56 and 57: Fiscal Theory• Equation depicting
Page 58: Conclusions of VAR discussion• We

Vector Autoregressions

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