Alternative Procedures for Estimating Vector Autoregressions Identified with Long-Run Restrictions

FEDS Working Paper No. 842

13 Pages Posted: 2 Nov 2005  

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Robert Vigfusson

Federal Reserve Board - Trade and Quantitative Studies

Date Written: October 2005

Abstract

We show that the standard procedure for estimating long-run identified vector autoregressions uses a particular estimator of the zero-frequency spectral density matrix of the data. We develop alternatives to the standard procedure and evaluate the properties of these alternative procedures using Monte Carlo experiments in which data are generated from estimated real business cycle models. We focus on the properties of estimated impulse response functions. In our examples, the alternative procedures have better small sample properties than the standard procedure, with smaller bias, smaller mean square error and better coverage rates for estimated confidence intervals.

Keywords: Technology shocks, hours worked, frequency domain, spectral density matrix

JEL Classification: E24, E32, O3

Suggested Citation

Christiano, Lawrence J. and Eichenbaum, Martin and Vigfusson, Robert, Alternative Procedures for Estimating Vector Autoregressions Identified with Long-Run Restrictions (October 2005). FEDS Working Paper No. 842. Available at SSRN: https://ssrn.com/abstract=833204 or http://dx.doi.org/10.2139/ssrn.833204

Lawrence J. Christiano

Northwestern University ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)

Federal Reserve Bank of Cleveland

East 6th & Superior
Cleveland, OH 44101-1387
United States

Federal Reserve Bank of Chicago

230 South LaSalle Street
Chicago, IL 60604
United States

Federal Reserve Bank of Minneapolis

90 Hennepin Avenue
Minneapolis, MN 55480
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Martin Eichenbaum

Northwestern University ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8232 (Phone)
847-491-7001 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert John Vigfusson (Contact Author)

Federal Reserve Board - Trade and Quantitative Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

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