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Unformatted text preview: m LR . Then: So: y LR = 0 requires + b 12 = 0. Using the restriction that y LR = 0 intuition: Consider the nonstructural VAR, We saw earlier that So a realization of mt of +1 raises u 1t by /(1 ) and raises u 2t by 1/(1 ). From the coefficients of the nonstructural VAR, compute longrun effects of unit shocks to each of u 1t , u 2t on y. Call these S 1 , S 2 . Then longrun effect of m shock on y = S 1 + S 2 . Thus, the restriction is = S 2 / S 1 . Bernanke and Mihov This implies: where The policy block (with time subscripts omitted for simplicity everything is date t): Example 1: D = B = 0. Then NBR = + v S , so NBR can be used to measure policy shocks. Example 2: D = 1, B = 1. Then one can show FF =  v S /( + ), so FF can be used to measure policy shocks....
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This note was uploaded on 02/28/2012 for the course ECON 210c taught by Professor Romer,c during the Fall '08 term at University of California, Berkeley.
 Fall '08
 Romer,C
 Economics

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