Point estimation in sign-restricted SVARs based on independence criteria with an application to rational bubbles

Helmut Herwartz and Shu Wang

Journal of Economic Dynamics and Control, 2023, vol. 151, issue C

Abstract: The median and median target estimates in sign-restricted SVARs are driven by a highly informative prior for the set-identified structural parameters. This paper proposes an approach for point elicitation by minimizing the evidence against the null hypothesis of independence with respect to the orthogonalized residuals implied by the identified set. Finite sample properties of the estimator are studied in a Monte Carlo experiment. As an empirical illustration, we analyze monetary policy effects within the rational bubble model of equity valuation (Galí, 2014). The detected monetary policy shocks lead to distinct response profiles of the fundamental and bubble components of asset prices.

Keywords: Structural vector autoregressions; Sign restrictions; Set identification; Impulse response functions; Independent component analysis (search for similar items in EconPapers)
JEL-codes: C18 C32 E44 E52 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:151:y:2023:i:c:s0165188923000362

DOI: 10.1016/j.jedc.2023.104630

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