Structural Analysis with Independent Innovations

Center for European Governance and Development Research (cege) Discussion Paper Number 208

32 Pages Posted: 22 May 2014

See all articles by Helmut Herwartz

Helmut Herwartz

University of Goettingen (Gottingen)

Date Written: May 22, 2014


Structural innovations in multivariate dynamic systems are typically hidden and often identified by means of a-priori economic reasoning. Under multivariate Gaussian model innovations there is no loss measure available to distinguish alternative orderings of variables or, put differently, between particular identifying restrictions and rotations thereof. Based on a non Gaussian framework of independent innovations, a loss statistic is proposed in this paper that allows to discriminate between alternative identifying assumptions on the basis of nonparametric density estimates. The merits of the proposed identification strategy are illustrated by means of a Monte Carlo study. Real data applications cover bivariate systems comprising US stock prices and total factor productivity, and four couples of international breakeven inflation rates to investigate monetary autonomy of the Bank of Canada and the Bank of England.

Keywords: structural innovations, identifying assumptions, SVAR, Cholesky decomposition, news shocks, monetary independence

JEL Classification: C32, G15

Suggested Citation

Herwartz, Helmut, Structural Analysis with Independent Innovations (May 22, 2014). Center for European Governance and Development Research (cege) Discussion Paper Number 208. Available at SSRN: or

Helmut Herwartz (Contact Author)

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073

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