Working Paper

Narrative Sign Restrictions for SVARs

Abstract: 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.

JEL Classification: C32; E52; Q35;

Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2017-10-01

Number: 2016-16

Pages: 61 pages