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http://ssrn.com/abstract=1251542
 
 

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Econometric Analysis of Structural Systems with Permanent and Transitory Shocks


Adrian Pagan


Australian National University (ANU) - Research School of Social Sciences (RSSS); University of New South Wales - Australian School of Business - School of Economics

M. Hashem Pesaran


University of Southern California; Cambridge University - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

February 4, 2008

UNSW Australian School of Business Research Paper No. 2008 ECON 04

Abstract:     
This paper considers the implications of the permanent/transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock. It provides a simple and intuitive generalization of the influential work of Blanchard and Quah (1989), and shows that structural equations with known permanent shocks can not contain error correction terms, thereby freeing up the latter to be used as instruments in estimating their parameters. The approach is illustrated by a re-examination of the identification schemes used by Wickens and Motto (2001), Shapiro and Watson (1988), King, Plosser, Stock, Watson (1991), Gali (1992, 1999) and Fisher (2006).

Number of Pages in PDF File: 26

Keywords: Permanent shocks, structural identification, error correction

JEL Classification: C30, C32, E10

working papers series


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Date posted: August 27, 2008  

Suggested Citation

Pagan, Adrian and Pesaran, M. Hashem, Econometric Analysis of Structural Systems with Permanent and Transitory Shocks (February 4, 2008). UNSW Australian School of Business Research Paper No. 2008 ECON 04. Available at SSRN: http://ssrn.com/abstract=1251542 or http://dx.doi.org/10.2139/ssrn.1251542

Contact Information

Adrian R. Pagan (Contact Author)
Australian National University (ANU) - Research School of Social Sciences (RSSS) ( email )
Canberra, Australian Capital Territory 0200
Australia
+61 2 6249 2216 (Phone)
+61 06 249 0182 (Fax)
University of New South Wales - Australian School of Business - School of Economics
High Street
Sydney, NSW 2052
Australia
M. Hashem Pesaran
University of Southern California ( email )
Department of Economics
3620 South Vermont Ave
Los Angeles, CA 90089-0253
United States
213 740 3510 (Phone)
Cambridge University - Faculty of Economics ( email )
Sidgwick Avenue
Cambridge CB3 9DE
United Kingdom
+44 1223 338403 (Phone)
+44 1223 335471 (Fax)
HOME PAGE: http://www.econ.cam.ac.uk/faculty/pesaran/
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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