“Still" an Agnostic Procedure to Identify Monetary Policy Shocks with Sign Restrictions

Bruno Perdigão

No 494, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: In this paper I use prominent models as a laboratory to analyze the performance of different identification strategies and propose the introduction of new model consistent restrictions to identify monetary policy shocks in SVARs. In particular, besides standard sign restrictions on interest rates and inflation, the inability of monetary policy to have real effects ten years after the shock is proposed as an additional identification restriction. Evidence is presented of the model consistency of this neutrality restriction both for the canonical three-equation new Keynesian model and the Smets and Wouters (2007) model. In a simple empirical application, I show that this restriction may be important to recover real effects of monetary policy.

Date: 2019-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ecm, nep-mac and nep-mon
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