Max-share misidentification
Max-share identification relies on a decomposition of the forecast error variance (FEV) over a target horizon, often conflating multiple shocks due to dependence on impulse responses at untargeted horizons and the shapes of responses to untargeted shocks. This paper introduces a "single horizon...
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| Main Authors: | , , |
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| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2024
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/soe_research/2796 https://ink.library.smu.edu.sg/context/soe_research/article/3795/viewcontent/Max_Share_Misidentification.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | Max-share identification relies on a decomposition of the forecast error variance (FEV) over a target horizon, often conflating multiple shocks due to dependence on impulse responses at untargeted horizons and the shapes of responses to untargeted shocks. This paper introduces a "single horizon" alternative, focusing narrowly on the actual target horizon to alleviate these issues. The identified shock is characterized in terms of true structural shocks in the single horizon framework, demonstrating that this approach typically bounds results compared to the traditional implementation. Using a numerical demand-and-supply example and an empirical news shock application, the study reveals that the max-share method inadvertently emphasizes untargeted transitory shocks, a limitation avoided by the single horizon approach. |
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