Choosing between identification schemes in noisy-news models

Chan, Joshua C.C. and Eisenstat, Eric and Koop, Gary (2020) Choosing between identification schemes in noisy-news models. Studies in Nonlinear Dynamics and Econometrics, 26 (1). pp. 99-136. ISSN 1558-3708 (https://doi.org/10.1515/snde-2020-0016)

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Abstract

This paper is about identifying structural shocks in noisy-news models using structural vector autoregressive moving average (SVARMA) models. We develop a new identification scheme and efficient Bayesian methods for estimating the resulting SVARMA. We discuss how our identification scheme differs from the one which is used in existing theoretical and empirical models. Our main contributions lie in the development of methods for choosing between identification schemes. We estimate specifications with up to 20 variables using US macroeconomic data. We find that our identification scheme is preferred by the data, particularly as the size of the system is increased and that noise shocks generally play a negligible role. However, small models may overstate the importance of noise shocks.

ORCID iDs

Chan, Joshua C.C., Eisenstat, Eric and Koop, Gary ORCID logoORCID: https://orcid.org/0000-0002-6091-378X;
CORE (COnnecting REpositories)