John C. Robertson

Structural Models of the Liquidity Effect

In this paper we examine a number of recent studies that claim to have obtained a well-defined liquidity effect using structural VAR models based on broad measures of money. These studies can be distinguished in terms of the identifying restrictions, sample periods, and frequency of data used. We show that estimation of the structural coefficients of all these models can be achieved by instrumental-variable methods, where the instruments are predetermined variables and the estimated structural errors from other equations in the system. Overall, our judgment is that the evidence for a liquidity effect from these studies is much less certain than suggested in the original papers, primarily because of the poor quality of the instruments used in estimation and the sensitivity of the estimates to the sample period used.

Modeling exchange rate dynamics: Non-linear dependence and thick tails

This paper illustrates a new approach to the statistical modeling of non-linear dependence and leptokurtosis in exchange rate data. The students t autoregressive model withdynamic heteroskedasticity (STAR) of spanos (1992) is shown to provide a parsimonious and statistically adequate representation of the probabilistic information in exchange rate data. For the STAR model, volatility predictions are formed via a sequentially updated weighting scheme which uses all the past history of the series. The estimated STAR models are shown to statistically dominate alternative ARCH-type formulations and suggest that volatility predictions are not necessarily as large or as variable as other models indicate.

Some Experiments in Constructing a Hybrid Model For Macroeconomic Analysis

Abstract VAR analysis is a widespread method of quantitatively analyzing macroeconomic issues. In this paper we examine the use of “hybrid” VAR models that retain the short-run features of a VAR but are designed to reproduce selected characteristics of calibrated models that are frequently used for the simulation of policy actions. The calibrated model we use is the McKibbin-Sachs Global (MSG2) model of the world economy. For permanent shocks we constrain the long-run responses in the hybrid model to match those from MSG2. For transitory shocks we match shorter-run cumulative responses. The estimated effects of a permanent US money-supply shock are broadly consistent with those of MSG2, but differ in some dimensions from those obtained from a standard recursive VAR.