Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks

  title={Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks},
  author={Lutz Kilian and Robert J. Vigfusson},
A common view in the literature is that the effect of energy price shocks on macroeconomic aggregates is asymmetric in energy price increases and decreases. We show that widely used asymmetric vector autoregressive models of the transmission of energy price shocks are misspecified, resulting in inconsistent parameter estimates, and that the implied impulse responses have been routinely computed incorrectly. As a result, the quantitative importance of unanticipated energy price increases for… CONTINUE READING
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