TEL  Vol.2 No.5 , December 2012
On the Identification of Technology Shocks: An Alternative to the Standard Long-Run Method
ABSTRACT
This study proposes an alternative procedure to identify technology shocks using vector autoregressions (VARs). The proposed procedure delivers improved small-sample properties relative to the standard long-run identification method provided that the dynamics of the observed variables can only be captured precisely by an infinite-order VAR. Monte Carlo experiments on artificial data produced by a standard version of the real business cycle model demonstrate that the proposed procedure is associated with smaller average bias and mean square error. These results obtain under a range of specifications regarding the share of technology shocks in overall output variability.

Cite this paper
U. Devrim Demirel, "On the Identification of Technology Shocks: An Alternative to the Standard Long-Run Method," Theoretical Economics Letters, Vol. 2 No. 5, 2012, pp. 474-481. doi: 10.4236/tel.2012.25089.
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