Working paper

When is Nonfundamentalness in SVARs A Real Problem?

Paul Beaudry, Patrick Fève, Alain Guay, and Franck Portier


Identification of structural shocks can be subject to nonfundamentalness, as the econometrician may have an information set smaller than the economic agents´i one. How serious is that problem from a quantitative point of view? In this work we propose a simple diagnosis statistics for the quantitative importance of nonfundamentalness in structural VARs. The diagnosis is of interest as nonfundamentalness is not an either/or question, but is a quantitative issue which can be more or less severe. Using our preferred strategy for identifying news shocks, we find that nonfundamentalness is quantitatively unimportant and that news shocks continue to generate significant business cycle type fluctuations when adjust the estimating procedure to take into account the potential nonfundamentalness issue.


Non-Fundamentalness; Business Cycles; SVARs; News;

JEL codes

  • C32: Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes
  • E32: Business Fluctuations • Cycles

See also

Published in

TSE Working Paper, n. 16-738, November 2016