A critique of structural VARS using business cycle theory
By: V. V. Chari, Patrick J. Kehoe, and Ellen R. McGrattan.
Contributors: Kehoe, Patrick J.; McGrattan, Ellen R.
Series: Federal Reserve Bank of Minneapolis, Research Department staff report ;; 364; Staff report (Federal Reserve Bank of Minneapolis. Research Dept. : Online) ;; 364.
Publisher: Federal Reserve Bank of Minneapolis
Published: 2005
Place of publication: [Minneapolis, Minn.]
Language: eng
Format: Electronic resource
Subjects: Business cycles -- Econometric models.
Description: "The main substantive finding of the recent structural vector autoregression literature with a differenced specification of hours (DSVAR) is that technology shocks lead to a fall in hours. Researchers have used these results to argue that business cycle models in which technology shocks lead to a rise in hours should be discarded. We evaluate the DSVAR approach by asking, is the specification derived from this approach misspecified when the data are generated by the very model the literature is trying to discard? We find that it is misspecified. Moreover, this misspecification is so great that it leads to mistaken inferences that are quantitatively large. We show that the other popular specification that uses the level of hours (LSVAR) is also misspecified.We argue that alternative state space approaches, including the business cycle accounting approach, are more fruitful techniques for guiding the development of business cycle theory"--Federal Reserve Bank of Minneapolis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 7/13/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.