Identifying SVARS from Sparse Narrative Instruments: Dynamic Effects of U.S. Macroprudential Policies
43 Pages Posted: 7 Jan 2020
Date Written: January, 2020
We study the identification of policy shocks in Bayesian proxy VARs for the case that the instrument consists of sparse qualitative observations indicating the signs of certain shocks. We propose two identification schemes, i.e. linear discriminant analysis and a non-parametric sign concordance criterion. Monte Carlo simulations suggest that these provide more accurate confidence bounds than standard proxy VARs and are more efficient than local projections. Our application to U.S. macroprudential policies finds persistent effects of capital requirements and mortgage underwriting standards on credit volumes and house prices together with moderate effects on GDP and inflation.
Keywords: Bayesian proxy VAR, capital requirements, discriminant analysis, mortgage underwriting standards, sign concordance
JEL Classification: C32, E44, G38
Suggested Citation: Suggested Citation