Sign restrictions and statistical identification under volatility breaks -- Simulation based evidence and an empirical application to monetary policy analysis

Helmut Herwartz and Martin Plödt
Authors registered in the RePEc Author Service: Martin Ademmer

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: Apart from a priori assumptions on instantaneous or long run effects of structural shocks, sign restrictions have become a prominent means for structural vector autoregressive (SVAR) analysis. Moreover, second order heterogeneity of systems of times series can be fruitfully exploited for identification purposes in SVARs. We show by means of a Monte Carlo study that taking statistical information into account offers a more accurate quantification of the true structural relations. In contrast, resorting only to commonly used sign restrictions bears a higher risk of failing to recover these structural relations. As an empirical illustration we employ the statistical and the sign restriction approach in a stylized model of US monetary policy. By combining identifying information from both approaches we strive for improved insights into the effects of monetary policy on output. Our results point to a decline in real GDP after a monetary tightening at an intermediate horizon.

JEL-codes: C10 C32 E47 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100326

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