The effect of a financial block on the identification of confidence shocks in a structural VAR model

Arbeitspapier

This paper studies the propagation and properties of a confidence shock in a structural vector autoregression (VAR) model with and without financial variables. The addition of a financial block does not considerably change the propagation and the contribution to the forecast error variance by the confidence shock. Nevertheless, for specific historical episodes, the inclusion of a financial block plays a role. In several recessions, the VAR with the financial block assigns a smaller role to confidence shocks for the fall in GDP. This suggests that the confidence shock may not be properly identified in a structural VAR when financial variables are omitted. Further, I identify a financial channel by which the confidence shock affects economic activity.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 18-21

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy
• Subject: Confidence shocks ; structural VARs ; financial channel

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Myohl, Christian
• Event: Veröffentlichung
• (who): University of Bern, Department of Economics
• (where): Bern
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/204921
• Last update: 10.03.2025, 11:46 AM CET