The role of expectations for economic fluctuations has received considerable attention in recent business cycle analysis. We exploit Markov regime switching models to identify shocks in cointegrated structural vector autoregressions and investigate different identification schemes for bivariate systems comprising U.S. stock prices and total factor productivity. The former variable is viewed as re°ecting expectations of economic agents about future productivity. It is found that some previously used identification schemes can be rejected in our model setup. The results crucially depend on the measure used for total factor productivity.
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Paper provided by European University Institute in its series Economics Working Papers with number
ECO2008/29.
Length: Date of creation: 2008 Date of revision: Handle: RePEc:eui:euiwps:eco2008/29
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