Nonfundamentalness or missing information ? Evidence from causal-noncausal VARs in macro-finance
This study investigates whether the noncausal dynamics observed in macroeconomic VAR models stem from genuine non-fundamentalness or from omitted common information that is available to economic agents but unobserved by econometricians. To address this, the paper proposes a hybrid causal–noncausal VARX framework integrated with factor filtering and employs the generalized covariance (GCov) estimator to effectively identify and correct noncausal components. Empirical application to the Stock–Watson monetary policy SVAR demonstrates that the proposed approach substantially attenuates spurious noncausal signals, yielding impulse responses that align more closely with theoretical priors and notably alleviating the “price puzzle.” This refinement enables a more accurate recovery of the underlying causal structure of the economy.