A Monte Carlo test for the identifying assumptions of the Blanchard and Quah (1989) model

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Abstract

In their VAR model, Blanchard and Quah (BQ, 1989) employed uncorrelatedness between Aggregate Supply (AS) and Aggregate Demand (AD) shocks and the long-run output neutrality condition as identifying assumptions. This article conducts a simple Monte Carlo experiment to gauge how well the BQ procedure can approximate the true structure if the underlying assumptions of uncorrelatedness and long-run output neutrality are not supported by data.

Original languageEnglish
Pages (from-to)601-605
Number of pages5
JournalApplied Economics Letters
Volume20
Issue number6
DOIs
Publication statusPublished - 2013 Apr

Bibliographical note

Funding Information:
I thank the referee for the helpful input and the Department of Economics at the University of Washington for their generous hospitality. This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2010-013-B00007).

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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