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Common Component Structural VARs

Author

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  • Forni, Mario
  • Gambetti, Luca
  • Lippi, Marco
  • Sala, Luca
Abstract
Structural VAR models produce results that can vary dramatically with the choice of variables, because information is deficient and/or contaminated by measured errors. We propose a novel procedure, the Common Component SVAR (CC-SVAR), which solves both problems. First, the common components of the variables of interest are estimated using High-Dimensional Factor techniques. Second, SVAR analysis is performed using such components. The key feature is that number of common components is larger than the number of shocks, so that the SVAR is singular. Consistency results for singular VARs are provided. We apply our procedure to monetary policy shocks. Our finding is that, with the CC-SVAR, results are robust and SVAR puzzles disappear.

Suggested Citation

  • Forni, Mario & Gambetti, Luca & Lippi, Marco & Sala, Luca, 2020. "Common Component Structural VARs," CEPR Discussion Papers 15529, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15529
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    3. Lippi, Marco & Deistler, Manfred & Anderson, Brian, 2023. "High-Dimensional Dynamic Factor Models: A Selective Survey and Lines of Future Research," Econometrics and Statistics, Elsevier, vol. 26(C), pages 3-16.

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    More about this item

    Keywords

    Structural var models; Structural factor models; Nonfundamentalness;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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