Abstract
An econometric procedure to identify the permanent shocks in vector error correction models is proposed, which allows one to combine long-run and contemporaneous restrictions. This procedure is applied to the six-variable model of King, Plosser, Stock and Watson (1991) with a view to providing an alternative interpretation to their results based on a different identification scheme. We argue that a real spending shock in the place of the real interest rate shock appears to better accommodate their empirical findings.
Original language | English |
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Pages (from-to) | 53-68 |
Number of pages | 16 |
Journal | Journal of Macroeconomics |
Volume | 22 |
Issue number | 1 |
DOIs | |
Publication status | Published - Dec 2000 |
Externally published | Yes |