In Structural Vector Autoregressive (SVAR) models, heteroskedasticity can be exploited to identify structural parameters statistically. In this paper, we propose to capture time variation in the second moment of structural shocks by a stochastic volatility (SV) model, assuming that their log variances follow latent AR(1) processes. Estimation is performed by Gaussian Maximum Likelihood and an e...

We identify structural vector autoregressive (SVAR) models by combining sign restrictions with information in external instruments and proxy variables. We incorporate the proxy variables by augmenting the SVAR with equations that relate them to the structural shocks. Our modeling framework allows to simultaneously identify different shocks using either sign restrictions or an external instrumen...

In this paper we apply the method of inferred causation for macroeconomic analysis. First we introduce briefly the theory of inferred causation developed by Pearl and Verma (1991). We apply this method to the identification of structural vector autoregression (SVAR) models. In an example of monetary policy analysis we demonstrate how causal information embedded in the data can be used to identi...

Since the highly influential paper of Meese and Rogoff (1983), who pointed out that the behavior of nominal exchange rates (NERs) can be described by a simple random walk, a lot of ink has been spilled over the sources of NER fluctuations in the context of the exchange rate regime choice. The empirically observed large NER volatility under floating led many to perceive the flexible NER as a sou...

We explore the use of external instrument SVAR to identify monetary policy shocks. We identify a forward guidance shock as the monetary shock component having zero instant impact on the policy rate. A contractionary forward guidance shock raises both future output and price level, stressing the relative importance of revealing policymakers’ view on future output and price level over committing ...

This paper builds a structural VARMA (SVARMA) model for investigating Canadian monetary policy. Despite the support for a VARMA model for monetary policy analysis, the traditional VAR and SVAR models have predominantly been used in the literature mainly due to difficulties associated with the identification and estimation of such a model. Using the scalar component model (SCM) proposed by Athan...