Identification of Singular and Noisy Structural VAR Models: The Collapsing-ICA Approach

46 Pages Posted: 9 Jul 2019 Last revised: 9 Jun 2022

See all articles by Francesco Cordoni

Francesco Cordoni

University of London, Royal Holloway College - Department of Economics

Fulvio Corsi

University of Pisa - Department of Economics

Multiple version iconThere are 2 versions of this paper

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

Cordoni, Francesco and Corsi, Fulvio, Identification of Singular and Noisy Structural VAR Models: The Collapsing-ICA Approach (July 9, 2019). Available at SSRN: https://ssrn.com/abstract=3415426 or http://dx.doi.org/10.2139/ssrn.3415426

Francesco Cordoni (Contact Author)

University of London, Royal Holloway College - Department of Economics ( email )

Royal Holloway College
Egham
Surrey, Surrey TW20 0EX
United Kingdom

Fulvio Corsi

University of Pisa - Department of Economics ( email )

via Ridolfi 10
I-56100 Pisa, PI 56100
Italy

HOME PAGE: http://people.unipi.it/fulvio_corsi/

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