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FRB Atlanta Working Paper
Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications
In this paper, we develop algorithms to independently draw from a family of conjugate posterior distributions over the structural parameterization when sign and zero restrictions are used to identify SVARs. We call this family of conjugate posterior distributions normal-generalized-normal. Our algorithms draw from a conjugate uniform-normal-inverse-Wishart posterior over the orthogonal reduced-form parameterization and transform the draws into the structural parameterization; this transformation induces a normal-generalized-normal posterior distribution over the structural parameterization. The uniform-normal-inverse-Wishart posterior over the orthogonal reduced-form parameterization has been prominent after the work of Uhlig (2005). We use Beaudry, Nam, and Wang's (2011) work on the relevance of optimism shocks to show the dangers of using alternative approaches to implement sign and zero restrictions to identify SVARs like the penalty function approach. In particular, we analytically show that the penalty function approach adds restrictions to the ones described in the identification scheme.
Cite this item
Jonas E. Arias & Juan F. Rubio-Ramirez & Daniel F. Waggoner, Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2014-1, 01 Feb 2014, revised 01 Oct 2017.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
Keywords: identification; sign restrictions; simulation
This item with handle RePEc:fip:fedawp:2014-01
is also listed on EconPapers
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