Structural Vector Autoregressions with Nonnormal Residuals

30 Pages Posted: 23 Feb 2006

See all articles by Markku Lanne

Markku Lanne

University of Helsinki - Faculty of Social Sciences

Helmut Luetkepohl

European University Institute; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2006

Abstract

In structural vector autoregressive (SVAR) models identifying restrictions for shocks and impulse responses are usually derived from economic theory or institutional constraints. Sometimes the restrictions are insufficient for identifying all shocks and impulse responses. In this paper it is pointed out that specific distributional assumptions can also help in identifying the structural shocks. In particular, a mixture of normal distributions is considered as a plausible model that can be used in this context. Our model setup makes it possible to test restrictions which are just-identifying in a standard SVAR framework. In particular, we can test for the number of transitory and permanent shocks in a cointegrated SVAR model. The results are illustrated using a data set from King, Plosser, Stock and Watson (1991) and a system of US and European interest rates.

Keywords: mixture normal distribution, cointegration, vector autoregressive process, vector error correction model, impulse responses

JEL Classification: C32

Suggested Citation

Lanne, Markku and Luetkepohl, Helmut, Structural Vector Autoregressions with Nonnormal Residuals (January 2006). CESifo Working Paper Series No. 1651, Available at SSRN: https://ssrn.com/abstract=886488

Markku Lanne

University of Helsinki - Faculty of Social Sciences ( email )

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Helsinki, 00014
Finland
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HOME PAGE: http://https://blogs.helsinki.fi/lanne/

Helmut Luetkepohl (Contact Author)

European University Institute ( email )

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Italy
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+39 055 4685 902 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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