Dissecting Monetary Policy Shocks in Sign-Restricted SVAR Models

Hyeon-seung Huh and David Kim
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Hyeon-seung Huh: Yonsei University

No 2025rwp-245, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: The use of sign restrictions to identify monetary policy shocks in structural vector autoregression (SVAR) models has garnered significant attention in recent years. In this context, we revisit two influential studies-Uhlig (2005) and Arias et al. (2019)-which offer conflicting conclusions regarding the output effects of contractionary monetary policy shocks. Our analysis seeks to uncover the underlying causes of these discrepancies and evaluate the sensitivity of the results to alternative model specifications. Specifically, we examine four key factors: (i) the influence of rotation priors on posterior inference in sign-restricted SVAR models, (ii) the robustness of findings when employing an alternative algorithm to generate large sets of responses, (iii) the sensitivity of results to variations in identifying restrictions, and (iv) the robustness of conclusions to changes in the monetary policy equation and the inclusion of the Great Moderation.

Keywords: Sign restrictions; Rotation matrix; monetary policy shocks; Structural vector autoregression; Baumeister and Hamilton critique (search for similar items in EconPapers)
JEL-codes: C32 C51 E32 E52 (search for similar items in EconPapers)
Pages: 33pages
Date: 2025-06
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-mon
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