Identification of Singular and Noisy Structural VAR Models: The Collapsing-ICA Approach
46 Pages Posted: 9 Jul 2019 Last revised: 9 Jun 2022
There are 2 versions of this paper
Identification of Singular and Noisy Structural VAR Models: The Collapsing-ICA Approach
Identification of Singular and Noisy Structural VAR Models: The Collapsing-Ica Approach
Date Written: July 9, 2019
Abstract
When the number of variables is larger than the number of structural shocks driving
the economy, the associated structural VAR system is said to be singular. We
propose an identification method for singular structural VAR models contaminated
by noise that combines a collapsing procedure with the Independent Component
Analysis. We discuss the consistency of the proposed combined procedure and
examine its finite sample properties with Monte Carlo simulations. The empirical
application of the proposed scheme on U.S. data identifies the low dimensional
system of structural shocks driving the U.S. economy. Interestingly, despite the
flexibility of the identification method proposed, our impulse response functions
display no evidence of price-puzzle effect.
Keywords: Structural vector autoregressive model, Identification, Independent component analysis, Pseudo maximum likelihood, Overdetermined ICA, Noisy ICA, Impulse response functions
JEL Classification: C14, C32, C51, E52
Suggested Citation: Suggested Citation