Testing for Non-Fundamentalness

Hamidi Sahneh, Mehdi (2016): Testing for Non-Fundamentalness. Forthcoming in:

Abstract

Non-fundamentalness arises when observed variables do not contain enough information to recover structural shocks. This paper propose a new test to empirically detect non-fundamentalness, which is robust to the conditional heteroskedasticity of unknown form, does not need information outside of the specified model and could be accomplished with a standard F-test. A Monte Carlo study based on a DSGE model is conducted to examine the finite sample performance of the test. I apply the proposed test to the U.S. quarterly data to identify the dynamic effects of supply and demand disturbances on real GNP and unemployment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Non-Fundamentalness; Invertibility; Vector Autoregressive.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

References

Bierens, H. J., 1990. A consistent conditional moment test of functional form. Econometrica: Journal of the Econometric Society, pages 1443{1458.

Blanchard, O. J. and Quah, D., 1989. The Dynamic Effects of Aggregate Demand and Supply Disturbances. American Economic Review, 79(4):655{73.

Hamidi Sahneh, M., 2014. Are the shocks obtained from svar fundamental? URL https://editorialexpress.com/cgibin/conference/download.cgi?db_name=EWM2014&paper_id=170.

Leeper, E. M., Walker, T. B., and Yang, S.-C. S., 2013. Fiscal foresight and information flows. Econometrica, 81(3):1115{1145.

Lippi, M. and Reichlin, L., 1993. The dynamic effects of aggregate demand and supply disturbances: reply. The American Economic Review, 83(0):653{658.

Lippi, M. and Reichlin, L., 1994. Var analysis, non-fundamental representations, blaschke matrices. Journal of Econometrics, 63(1):307{325.

Stinchcombe, M. B. and White, H., 1998. Consistent specification testing with nuisance parameters present only under the alternative. Econometric theory, 14(03):295{325.