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Structural VARs, deterministic and stochastic trends: how much detrending matters for shock identification

Wiriyawit, Varang; Wong, Benjamin


Detrending within structural vector autoregressions (SVAR) is directly linked to the shock identification. We investigate the consequences of trend misspecification in an SVAR using both standard real business cycle models and bi-variate SVARs as data generating processes. Our bias decomposition reveals biases arising directly from trend misspecification are not trivial when compared to other widely studied misspecifications. Misspecifying the trend also distorts impulse response functions of...[Show more]

CollectionsANU Research Publications
Date published: 2015-10
Type: Journal article
Source: Studies in Nonlinear Dynamics & Econometrics
DOI: 10.1515/snde-2015-0030


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