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Working Paper
Macroeconomic Forecasting and Variable Ordering in Multivariate Stochastic Volatility Models
We document five novel empirical findings on the well-known potential ordering drawback associated with the time-varying parameter vector autoregression with stochastic volatility developed by Cogley and Sargent (2005) and Primiceri (2005), CSP-SV. First, the ordering does not affect point prediction. Second, the standard deviation of the predictive densities implied by different orderings can differ substantially. Third, the average length of the prediction intervals is also sensitive to the ordering. Fourth, the best ordering for one variable in terms of log-predictive scores does not ...
Working Paper
Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings
A common practice in empirical macroeconomics is to examine alternative recursive orderings of the variables in structural vector autoregressive (VAR) models. When the implied impulse responses look similar, the estimates are considered trustworthy. When they do not, the estimates are used to bound the true response without directly addressing the identification challenge. A leading example of this practice is the literature on the effects of uncertainty shocks on economic activity. We prove by counterexample that this practice is invalid in general, whether the data generating process is a ...