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Infinite-Variance, Alpha-Stable Shocks In Monetary SVAR: Final Working-Paper Version

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Executive Summary

This paper adumbrates a theory of what might be going wrong in the monetary SVAR literature and provides supporting empirical evidence. The theory is that macroeconomists may be attempting to identify structural forms that do not exist, given the true distribution of the innovations in the reduced-form VAR. The paper shows that this problem occurs whenever some innovation in the VAR has an infinite-variance distribution and the matrix of coefficients on the contemporaneous terms in the VAR's structural form is nonsingular.

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