Identifying the Shocks also Identifies the Constants: Implications for VAR analysis

Andrew Mountford

MPRA Paper from University Library of Munich, Germany

Abstract: Restrictions on the contemporaneous effects matrix used to identify fundamental shocks in a structural VAR, also determine the mapping from the structural constant terms to the reduced form constant terms. In some models one will have priors about these structural constant terms and these should therefore be included in a Bayesian estimation procedure. We illustrate the significance of this using a standard 3 variable VAR estimated in Baumeister and Hamilton (2018). We show that imposing priors over the structural constant terms can lead to a more intuitive estimated monetary policy rule and a larger role for monetary policy in describing the evolution of the data, particularly for inflation.

Keywords: Vector Autoregressions; Historical Decompositions; Monetary Policy (search for similar items in EconPapers)
JEL-codes: C32 E00 E50 (search for similar items in EconPapers)
Date: 2025-11-14
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:126806

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