A Review Of Nonfundamentalness And Identification In Structural VAR Models
Source: Scuola Superiore Sant'Anna
The authors review, under a historical perspective, the development of the problem of non-fundamentalness of Moving Average (MA) representations of economic models, starting from the work by Hansen and Sargent . Nonfundamentalness typically arises when agents' information space is larger than the econometrician's one. Therefore it is impossible for the latter to use standard econometric techniques, as Vector Auto Regression (VAR), to estimate economic models. They then review the works by Lippi and Reichlin  and Lippi and Reichlin  which are the first attempts to give to nonfundamental representations the economic relevance that they deserve, and to outline a method to obtain such representations starting from an estimated VAR.