Narrative Sign Restrictions for Svars
61 Pages Posted: 19 Dec 2016 Last revised: 21 Oct 2017
Date Written: 2016-12-01
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.
Keywords: narrative information, SVARs, Bayesian approach, sign restrictions, oil market, monetary policy
JEL Classification: C32, E52, Q35
Suggested Citation: Suggested Citation