TY - JOUR AU - Christiano, Lawrence J AU - Eichenbaum, Martin AU - Vigfusson, Robert TI - Assessing Structural VARs JF - National Bureau of Economic Research Working Paper Series VL - No. 12353 PY - 2006 Y2 - July 2006 DO - 10.3386/w12353 UR - http://www.nber.org/papers/w12353 L1 - http://www.nber.org/papers/w12353.pdf N1 - Author contact info: Lawrence Christiano Department of Economics Northwestern University 2001 Sheridan Road Evanston, IL 60208 Tel: 847/491-8231 Fax: 847/491-7001 E-Mail: l-christiano@northwestern.edu Martin S. Eichenbaum Department of Economics Northwestern University 2003 Sheridan Road Evanston, IL 60208 Tel: 847/491-8232 Fax: 847/491-7001 E-Mail: eich@northwestern.edu Robert Vigfusson Federal Reserve Board Washington, DC 20551 E-Mail: robert.j.vigfusson@frb.gov M1 - published as Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson. "Assessing Structural VARs," in Daron Acemoglu, Kenneth Rogoff and Michael Woodford, editors, "NBER Macroeconomics Annual 2006, Volume 21" MIT Press (2007) AB - This paper analyzes the quality of VAR-based procedures for estimating the response of the economy to a shock. We focus on two key issues. First, do VAR-based confidence intervals accurately reflect the actual degree of sampling uncertainty associated with impulse response functions? Second, what is the size of bias relative to confidence intervals, and how do coverage rates of confidence intervals compare with their nominal size? We address these questions using data generated from a series of estimated dynamic, stochastic general equilibrium models. We organize most of our analysis around a particular question that has attracted a great deal of attention in the literature: How do hours worked respond to an identified shock? In all of our examples, as long as the variance in hours worked due to a given shock is above the remarkably low number of 1 percent, structural VARs perform well. This finding is true regardless of whether identification is based on short-run or long-run restrictions. Confidence intervals are wider in the case of long-run restrictions. Even so, long-run identified VARs can be useful for discriminating among competing economic models. ER -