EconPapers    
Economics at your fingertips  
 

SVARs With Occasionally-Binding Constraints

Frank Schorfheide, S. Boragan Aruoba, Marko Mlikota and Sergio Villalvazo

No 15923, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a structural VAR in which an occasionally-binding constraint generates censoring of one of the dependent variables. Once the censoring mechanism is triggered, we allow some of the coefficients for the remaining variables to change. We show that a necessary condition for a unique reduced form is that regression functions for the non-censored variables are continuous at the censoring point and that parameters satisfy some mild restrictions. In our application the censored variable is a nominal interest rate constrained by an effective lower bound (ELB). According to our estimates based on U.S. data, once the ELB becomes binding, the coefficients in the inflation equation change significantly, which translates into a change of the inflation responses to (unconventional) monetary policy and demand shocks. Our results suggest that the presence of the ELB is indeed empirically relevant for the propagation of shocks. We also obtain a shadow interest rate that shows a significant accommodation in the early parts of the Great Recession, followed by a mild and steady accommodation until liftoff in 2016.

Keywords: Bayesian inference; Effective lower bound; Limited dependent variables; Sequential monte carlo methods; Structural vars; Shadow rate (search for similar items in EconPapers)
JEL-codes: C11 C22 C34 E32 E52 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP15923 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: SVARs with occasionally-binding constraints (2022) Downloads
Working Paper: SVARs With Occasionally-Binding Constraints (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15923

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15923

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-31
Handle: RePEc:cpr:ceprdp:15923