Favero, Carlo; Giavazzi, Francesco - In: American Economic Journal: Economic Policy 4 (2012) 2, pp. 69-94
This paper argues in favor of empirical models built by including in fiscal VAR models structural shocks identified via the narrative method. We first show that "narrative" shocks are orthogonal to the relevant information set a fiscal VAR. We then derive impulse responses to these shocks. The...