Narrative Sign Restrictions for SVARs

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 mode...

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Bibliographic Details
Published in:The American economic review Vol. 108; no. 10; pp. 2802 - 2829
Main Authors: Antolín-Díaz, Juan, Rubio-Ramírez, Juan F.
Format: Journal Article
Language:English
Published: Nashville American Economic Association 01.10.2018
Subjects:
Economic models
Historical events
Inference
Monetary policy
Narratives
Petroleum
Regression analysis
Restrictions
ISSN:0002-8282, 1944-7981
Online Access:Get full text
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Summary: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.
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ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20161852