Higher-Order Moment Inequality Restrictions for SVARs

Philippe Andrade, Filippo Ferroni and Leonardo Melosi
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Leonardo Melosi: University of Warwick, EUI, DNB & CEPR

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We introduce a method that exploits some non-gaussian features of structural shocks to identify structural vector autoregressive models. More specifically, we propose to combine inequality restrictions on the higher-order moments of the structural shocks of interest with other set-identifying constraints, typically sign restrictions. We illustrate how, both in large or small sample settings, higher-moment restrictions considerably narrows the identification of monetary policy shocks compared to what is obtained with minimal sign restrictions typically used in the SVAR literature. The proposed methodology also delivers new insights on the macroeconomic effects of sovereign risk in the Euro Area, and on the transmission of geopolitical risk to the US economy.

Keywords: Shock identification; skewness; kurtosis; sign restrictions; monetary policy; sovereign risk; geopolitical risk. JEL Codes: C32; E27; E32 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-eec and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1537

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