On Econometric Analysis of Structural Systemswith Permanent and Transitory Shocksand Exogenous Variables

This paper considers the implications of the permanent/transitory decomposition of shocksfor identification of structural models in the general case where the model might contain morethan one permanent structural shock. It provides a simple and intuitive generalization of theinfluential work of Blanchard and Quah (1989), and shows that structural equations for whichthere are known permanent shocks must have no error correction terms present in them,thereby freeing up the latter to be used as instruments in estimating their parameters...