Narrative Sign Restrictions for SVARs

We identify structural vector autoregressions using narrative sign restrictions. Narrative sign restrictions constrain the structural shocks and/or the historical decomposition around key historical events, ensuring that they agree with the established narrative account of these episodes. Using mode...

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Bibliographic Details
Published in:The American economic review 2018-10, Vol.108 (10), p.2802-2829
Main Authors: Antolín-Díaz, Juan, Rubio-Ramírez, Juan F.
Format: Article
Language:English
Subjects:
Economic models
Historical events
Monetary policy
Narratives
Petroleum
Regression analysis
Restrictions
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Summary:We identify structural vector autoregressions using narrative sign restrictions. Narrative sign restrictions constrain the structural shocks and/or the historical decomposition around key historical events, ensuring that they agree with the established narrative account of these episodes. Using models of the oil market and monetary policy, we show that narrative sign restrictions tend to be highly informative. Even a single narrative sign restriction may dramatically sharpen and even change the inference of SVARs originally identified via traditional sign restrictions. Our approach combines the appeal of narrative methods with the popularized usage of traditional sign restrictions.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20161852