Article

When is Nonfundamentalness in SVARs A Real Problem?

Paul Beaudry, Patrick Fève, Alain Guay, and Franck Portier

Abstract

In SVARs, identification of structural shocks can be subject to nonfundamentalness, as the econometrician may have an information set smaller than the economic agents’ one. How serious is that problem from a quantitative point of view? In this paper we propose a simple diagnostic for the quantitative importance of nonfundamentalness in structural VARs. The diagnostic is of interest as nonfundamentalness is not an either/or question, and its quantitative implications can be more or less severe. As an illustration, we apply our diagnostic to the identification of TFP news shocks and we find that nonfundamentalness is of little quantitatively importance in that context.

Keywords

NonFundamentalness; Business Cycles; SVARs; News Shocks.;

JEL codes

  • C32: Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes
  • E32: Business Fluctuations • Cycles

Replaces

Paul Beaudry, Patrick Fève, Alain Guay, and Franck Portier, When is Nonfundamentalness in SVARs A Real Problem?, TSE Working Paper, n. 16-738, November 2016.

Reference

Paul Beaudry, Patrick Fève, Alain Guay, and Franck Portier, When is Nonfundamentalness in SVARs A Real Problem?, Review of Economic Dynamics, vol. 34, October 2019, pp. 221–243.

Published in

Review of Economic Dynamics, vol. 34, October 2019, pp. 221–243