Shock Restricted Structural Vector-Autoregressions

Sydney Ludvigson, Sai Ma and Serena Ng (serena.ng@columbia.edu)

No 23225, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: It is well known that the covariance structure of the data alone is not enough to identify an SVAR, and the conventional approach is to impose restrictions on the parameters of the model based on a priori theoretical considerations. This paper suggests that much can be gained by requiring the properties of the identified shocks to agree with major economic events that have been realized. We first show that even without additional restrictions, the data alone are often quite informative about the quantitatively important shocks that have occurred in the sample. We propose shrinking the set of solutions by imposing two types of inequality constraints on the shocks. The first restricts the sign and possibly magnitude of the shocks during unusual episodes in history. The second restricts the correlation between the shocks and variables external to the SVAR. The methodology provides a way to assess the validity of assumptions imposed as equality constraints. The effectiveness and limitations of this approach are exemplified with three applications.

JEL-codes: C01 C5 C51 E17 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
Note: AP EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.nber.org/papers/w23225.pdf (application/pdf)

Related works:
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:nbr:nberwo:23225

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23225

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).