New Approaches to the Identification of Low-Frequency Drivers: An Application to Technology Shocks

55 Pages Posted: 15 Nov 2019

See all articles by Alistair Dieppe

Alistair Dieppe

World Bank

Francis Neville

University of North Carolina (UNC) at Chapel Hill

Gene Kindberg-Hanlon

World Bank

Date Written: October 24, 2019

Abstract

This paper addresses the identification of low-frequency macroeconomic shocks, such as technology, in Structural Vector Autoregressions. Whilst identification issues with long-run restricted VARs are well documented, the recent attempt to overcome said issues using the Max-Share approach of Francis et al. (2014) and Barsky and Sims (2011) has its own shortcomings, primarily that they are vulnerable to bias from confounding non-technology shocks. A modification to the Max-Share approach and two further spectral methods are proposed to improve empirical identification. Performance directly hinges on whether these confounding shocks are of high or low frequency. Applied to US and emerging market data, spectral identifications are most robust across specifications, and non-technology shocks appear to be biasing traditional methods of identifying technology shocks. These findings also extend to the SVAR identification of dominant business-cycle shocks, which are shown will be a variance-weighted combination of shocks rather than a single structural driver.

Keywords: Labor Markets, Macroeconomic Management, National Governance, Social Analysis, Quality of Life & Leisure, Youth and Governance, Government Policies, Public Finance Decentralization and Poverty Reduction, Macro-Fiscal Policy, Taxation & Subsidies, Public Sector Economics, Economic Adjustment and Lending

Suggested Citation

Dieppe, Alistair and Neville, Francis and Kindberg-Hanlon, Gene Joseph, New Approaches to the Identification of Low-Frequency Drivers: An Application to Technology Shocks (October 24, 2019). World Bank Policy Research Working Paper No. 9047. Available at SSRN: https://ssrn.com/abstract=3485931

Alistair Dieppe (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Francis Neville

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Gene Joseph Kindberg-Hanlon

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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