Codependent VAR models and the pseudo-structural form
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This paper investigates whether codependence restrictions can be uniquely imposed on VAR models via the so-called pseudo-structural form used in the literature. Codependence of order q is given if a linear combination of autocorrelated variables eliminates the serial correlation after q lags. Importantly, maximum likelihood estimation and likelihood ratio testing are only possible if the codependence restrictions can be uniquely imposed. Applying the pseudo-structural form, our study reveals that this is not generally the case, but that unique imposition is guaranteed in several important special cases.
KeywordsCodependence VAR Pseudo-structural form Serial correlation common features
We are grateful to two anonymous referees, the editor, Kyusang Yu and participants of seminars at the Central Bank Norway, the Humboldt University Berlin, the Leibniz University Hannover, and the University of Mannheim for very helpful comments. Of course, all remaining errors are our own.
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