Arbeitspapier

Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings

A common practice in empirical macroeconomics is to examine alternative recursive orderings of the variables in structural vector autogressive (VAR) models. When the implied impulse responses look similar, the estimates are considered trustworthy. When they do not, the estimates are used to bound the true response without directly addressing the identification challenge. A leading example of this practice is the literature on the effects of uncertainty shocks on economic activity. We prove by counterexample that this practice is invalid in general, whether the data generating process is a structural VAR model or a dynamic stochastic general equilibrium model.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 10121

Classification
Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Model Construction and Estimation
Business Fluctuations; Cycles
Subject
Cholesky decomposition
orthogonalization
simultaneity
endogeneity
uncertainty
business cycle

Event
Geistige Schöpfung
(who)
Kilian, Lutz
Plante, Michael D.
Richter, Alexander W.
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2022

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Kilian, Lutz
  • Plante, Michael D.
  • Richter, Alexander W.
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2022

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