Narrative Sign Restrictions for Svars

54 Pages Posted: 26 Sep 2016

Multiple version iconThere are 2 versions of this paper

Date Written: September 2016

Abstract

This paper identifies structural vector autoregressions using narrative sign restrictions. Narrative sign restrictions constrain the structural shocks and the historical decomposition of the data around key historical events, ensuring that they agree with the established account of these episodes. Using models of the oil market and monetary policy, we show that narrative sign restrictions can be highly informative. In particular we highlight that adding a small number of narrative sign restrictions, or sometimes even a single one, dramatically sharpens and even changes the inference of SVARs originally identified via the established practice of placing sign restrictions only on the impulse response functions. We see our approach as combining the appeal of narrative methods with the desire for basing inference on a few uncontroversial restrictions that popularized the use of sign restrictions.

Suggested Citation

Antolin-Diaz, Juan and Rubio Ramírez, Juan, Narrative Sign Restrictions for Svars (September 2016). CEPR Discussion Paper No. DP11517. Available at SSRN: https://ssrn.com/abstract=2843536

Juan Antolin-Diaz (Contact Author)

Fulcrum Asset Management ( email )

5-7 Chester eld Gardens
London, W1J 5BQ
United Kingdom

Juan Rubio Ramírez

Emory University ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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