Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings
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Wiley Open Access
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| Natura: | Artículo Open Access |
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Wiley
2025
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| _version_ | 1867016011036753920 |
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| author | Lutz Kilian Michael D. Plante Alexander W. Richter |
| author_facet | Lutz Kilian Michael D. Plante Alexander W. Richter Lutz Kilian Michael D. Plante Alexander W. Richter |
| collection | Wiley Open Access |
| contents | Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings Lutz Kilian Michael D. Plante Alexander W. Richter Journal of Applied Econometrics ABSTRACTA common practice in empirical macroeconomics is to examine alternative recursive orderings of the variables in structural vector autoregressive (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 and show by simulation that this practice is invalid, whether the data generating process is a structural VAR model or a dynamic stochastic general equilibrium model. Simulation evidence suggests that the underlying identification challenge can be addressed using an instrumental variables estimator. 10.1002/jae.3113 http://onlinelibrary.wiley.com/termsAndConditions#vor |
| doi_str_mv | 10.1002/jae.3113 |
| format | Artículo Open Access |
| id | wiley_oa_10_1002_jae_3113 |
| institution | Wiley Open Access |
| license_str_mv | http://onlinelibrary.wiley.com/termsAndConditions#vor |
| publishDate | 2025 |
| publisher | Wiley |
| record_format | wiley_oa |
| spellingShingle | Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings Lutz Kilian Michael D. Plante Alexander W. Richter Journal of Applied Econometrics Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings Lutz Kilian Michael D. Plante Alexander W. Richter Journal of Applied Econometrics ABSTRACTA common practice in empirical macroeconomics is to examine alternative recursive orderings of the variables in structural vector autoregressive (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 and show by simulation that this practice is invalid, whether the data generating process is a structural VAR model or a dynamic stochastic general equilibrium model. Simulation evidence suggests that the underlying identification challenge can be addressed using an instrumental variables estimator. 10.1002/jae.3113 http://onlinelibrary.wiley.com/termsAndConditions#vor |
| title | Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings |
| topic | Journal of Applied Econometrics |
| url | https://onlinelibrary.wiley.com/doi/10.1002/jae.3113 |