Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications

Jonas E. Arias, Juan F Rubio-Ramirez and Daniel Waggoner
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Jonas E. Arias: https://www.philadelphiafed.org/our-people/jonas-arias

No 2014-1, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: In this paper, we develop algorithms to independently draw from a family of conjugate posterior distributions over the structural parameterization when sign and zero restrictions are used to identify SVARs. We call this family of conjugate posterior distributions normal-generalized-normal. Our algorithms draw from a conjugate uniform-normal-inverse-Wishart posterior over the orthogonal reduced-form parameterization and transform the draws into the structural parameterization; this transformation induces a normal-generalized-normal posterior distribution over the structural parameterization. The uniform-normal-inverse-Wishart posterior over the orthogonal reduced-form parameterization has been prominent after the work of Uhlig (2005). We use Beaudry, Nam, and Wang's (2011) work on the relevance of optimism shocks to show the dangers of using alternative approaches to implement sign and zero restrictions to identify SVARs like the penalty function approach. In particular, we analytically show that the penalty function approach adds restrictions to the ones described in the identification scheme.

Keywords: identification; sign restrictions; simulation (search for similar items in EconPapers)
JEL-codes: C11 C32 E50 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2014-02-01
New Economics Papers: this item is included in nep-cmp, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

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Related works:
Working Paper: Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications (2016)
Working Paper: Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications (2014)
Working Paper: Inference Based on SVAR Identified with Sign and Zero Restrictions: Theory and Applications (2014)
Working Paper: Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications (2014)
Working Paper: Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications (2014)
Working Paper: Inference Based on SVARs Identied with Sign and Zero Restrictions: Theory and Applications (2013)
Working Paper: Inference Based on SVARs Identied with Sign and Zero Restrictions: Theory and Applications (2013)
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