Shock-percentile Restrictions for SVARs

Matthew Read

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: I propose identifying structural vector autoregressions using 'shock-percentile' restrictions. These restrictions require the realisation of a structural shock in a selected episode to lie in the tail of the shock's historical distribution, representing the belief that a relatively large shock has occurred. I argue that shock-percentile restrictions are an attractive alternative to imposing numeric bounds on shock magnitudes, which are difficult to credibly elicit. Simulations demonstrate the potential for shock-percentile restrictions to provide identifying information. In two empirical applications, I exploit shock-percentile restrictions to disentangle the relationship between uncertainty and real activity, and to sharpen identification of the macroeconomic effects of US monetary policy.

Keywords: monetary policy; narrative restrictions; set identification; structural vector autoregression; uncertainty (search for similar items in EconPapers)
JEL-codes: C32 D80 E32 E44 E52 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2026-01

DOI: 10.47688/rdp2026-01

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