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Identifying geopolitical shocks in VARs: maybe let go off the recursive schemes already
This post is based on my (at the time of writing) ongoing research project about the transmission channels of geopolitical tensions. Stay tuned for the full manuscript 🙂 Incredible identification assumptions: 35th anniversary? Due to international developments during the last couple of years, the macroeconomic effects of geopolitical developments have become a hot-topic in economics.…
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The case for steady state priors in BVARs – application to the euro area inflation surge
Note: Due to a small coding error in the original modelling, this post has been edited since its initial release. Results and discussion remain qualitatively the same, while some differences in the impulse responses emerged. Historical decompositions remain practically the same. Although practical algorithms for Gibbs sampling have been available for some time (see Villani,…
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Bergholt, Canova, Furlanetto, Maffei-Faccioli and Ulvedal are wrong about historical shock decompositions
In their working paper, Bergholt et. al (2024) (hence “Authors”) illustrate that due to the estimation uncertainty of the constant (or in general all exogenous) term the historical decompositions built around such constant terms are prone to large quantitative and qualitative variation making them unreliable for inferential purposes. In this post I will briefly note…
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Juho Pitkäranta, Economist 