 Identifying monetary policy shocks through external constraintsFrancesco Fusari Journal of Macroeconomics, 2025, vol. 85, issue C Abstract: This paper proposes a new strategy for the identification of monetary policy shocks in structural vector autoregressions (SVARs). It combines sign restrictions on the impulse responses with external constraints on high-frequency surprises and central bank’s macroeconomic projections. I use this approach to evaluate the transmission of US monetary policy over the period 1965–2007. First, I find that contractionary monetary policy shocks unequivocally decrease output, sharpening the ambiguous implications of standard sign-restricted SVARs. Second, I show that these findings, differently from those obtained under alternative methodologies, remain valid even when inference is performed using a prior-robust Bayesian algorithm. Furthermore, my identification strategy is successful in recovering monetary shocks and monetary policy equations that are coherent, respectively, with narrative sign restrictions and restrictions on the systematic component of monetary policy. Finally, I show that this framework ensures great flexibility and is particularly convenient for the joint identification of monetary policy and central bank information shocks. Keywords: SVARs; Monetary policy shocks; Set-identification (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:85:y:2025:i:c:s0164070425000321 DOI: 10.1016/j.jmacro.2025.103696 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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