EconPapers    
Economics at your fingertips  
 

Sign Restrictions in Bayesian FaVARs with an Application to Monetary Policy Shocks

Pooyan Amir Ahmadi () and Harald Uhlig ()

No 21738, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a novel identification strategy of imposing sign restrictions directly on the impulse responses of a large set of variables in a Bayesian factor-augmented vector autoregression. We conceptualize and formalize conditions under which every additional sign restriction imposed can be qualified as either relevant or irrelevant for structural identification up to a limiting case of point identification. Deriving exact conditions we establish that, (i) in a two dimensional factor model only two out of potentially infinite sign restrictions are relevant and (ii) in contrast, in cases of higher dimension every additional sign restriction can be relevant improving structural identification. The latter result can render our approach a blessing in high dimensions. In an empirical application for the US economy we identify monetary policy shocks imposing conventional wisdom and find modest real effects avoiding various unreasonable responses specifically present and pronounced combining standard recursive identification with FAVARs.

JEL-codes: C22 E5 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w21738.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:nbr:nberwo:21738

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w21738

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2022-06-11
Handle: RePEc:nbr:nberwo:21738