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The Role of the Prior in Estimating VAR Models with Sign Restrictions
Several recent studies have expressed concern that the Haar prior typically imposed in estimating sign-identified VAR models may be unintentionally informative about the implied prior for the structural impulse responses. This question is indeed important, but we show that the tools that have been used in the literature to illustrate this potential problem are invalid. Specifically, we show that it does not make sense from a Bayesian point of view to characterize the impulse response prior based on the distribution of the impulse responses conditional on the maximum likelihood estimator of ...