Innovations Meet Narratives -Improving the Power-Credibility Trade-off in Macro

Geert Mesters and Régis Barnichon

No 1475, Working Papers from Barcelona School of Economics

Abstract: In macro, instances of clear and indisputable exogenous variation are rare and researchers often face a difficult trade-off between credibility and efficiency. In this work, we introduce a new method -innovation-powered IV-, which allows to reduce the confidence intervals of a credible but low power identification scheme (e.g., a narrative instrument) by leveraging the high power of a possibly misspecified parametric identification assumption (e.g., a short run restriction). The method delivers large reductions in confidence intervals for the causal effects of monetary and fiscal policy, with gains of around 40 percent compared to state of the art narratively-identified estimates.

Keywords: Monetary and Fiscal Policy; missing data; time series identification; narrative identification (search for similar items in EconPapers)
JEL-codes: C14 C32 E32 E52 (search for similar items in EconPapers)
Date: 2025-01
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2025/01/1475.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1475

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().