Comparing SVARs and SEMs: More Shocking Stories

The structural vector autoregression (SVAR) and simultaneous equation macroeconometric model (SEM) styles of empirical macroeconomic modelling are compared and contrasted, with reference to two models of the UK economy, namely the Cambridge long-run structural VAR model and the COMPACT model. Generalized and traditional/orthogonalized impulse responses are also compared and contrasted, and used to illustrate model properties. The subtitle is a reference to the article “Shocking stories ” by Levtchenkova, Pagan and Robertson; in particular, their “reverse engineering ” procedure is used to infer long-run relations of COMPACT comparable to the CSVAR cointegrating relations. Acknowledgements The helpful advice of Tony Garratt and Simon Wren-Lewis on the installation and operation of the models, and the support of the Research School SOM, University of Groningen, are gratefully acknowledged. Macroeconometric models of national economies and the global economy continuousl