Andre Kurmann and Elmar Mertens
Abstract: Beaudry and Portier (American Economic Review, 2006) propose an identification scheme to study the effects of news shocks about future productivity in Vector Error Correction Models (VECM). This comment shows that their methodology does not have a unique solution, when applied to their VECMs with more than two variables. The problem arises from the interplay of cointegration assumptions and long-run restrictions imposed by Beaudry and Portier (2006).
Keywords: Vector Error Correction Model, long-run restrictions, news shocksFull paper (332 KB PDF) | Full paper (Screen Reader Version)