Identifying VAR models under rational expectations

This paper shows that the exclusion restrictions used to identify structural vector autoregressions (SVARs) generally yield inconsistent parameter estimates under rational expectations. I develop an alternative method of identifying rational-expectations models within the SVAR framework that circumvents the need of imposing stringent identifying restrictions on the dynamic processes for technologies, preferences, and other mechanisms (e.g., adjustment costs). These strong restrictions may explain why rational-expectations models are frequently rejected by the data. Two empirical examples demonstrate the feasibility and potential advantages of this alternative modeling strategy.