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Title: Identification of overdetermined structural VAR models Authors:  Francesco Cordoni - Scuola Normale Superiore (Italy) [presenting]
Fulvio Corsi - University of Pisa and City University London (Italy)
Abstract: When the number of observed macroeconomic variables is larger than the number of structural shocks driving the economy, the associated structural VAR system is said to be overdetermined. We propose an identification method for overdetermined structural VAR models by first pretesting for the number of shocks and then combining a collapsing procedure with a PML approach. We show the consistency of the proposed combined procedure and examine its finite sample properties with Monte Carlo simulations. The empirical application of the proposed scheme on U.S. data allows to identify the low dimensional system of structural shocks driving the U.S. economy.