Inference for VARs identified with sign restrictions. Issue 3 (28th November 2018)

• Record Type: Journal Article
• Authors: Granziera, Eleonora; Moon, Hyungsik Roger; Schorfheide, Frank
• Is Part Of: Quantitative economics. Volume 9:Issue 3(2018)
• Page Start: 1087
• Page End: 1121
• Publication Date: 2018-11-28
• Subjects: Bayesian inference -- frequentist inference -- set‐identified models -- sign restrictions -- structural VARs; C1 -- C32; Economics, Mathematical -- Periodicals; Econometrics -- Periodicals; Economics -- Periodicals; 330.0151
• DOI: 10.3982/QE978
• Languages: English
• ISSNs: 1759-7323

Abstract

Abstract : There is a fast growing literature that set‐identifies structural vector autoregressions (SVARs) by imposing sign restrictions on the responses of a subset of the endogenous variables to a particular structural shock (sign‐restricted SVARs). Most methods that have been used to construct pointwise coverage bands for impulse responses of sign‐restricted SVARs are justified only from a Bayesian perspective. This paper demonstrates how to formulate the inference problem for sign‐restricted SVARs within a moment‐inequality framework. In particular, it develops methods of constructing confidence bands for impulse response functions of sign‐restricted SVARs that are valid from a frequentist perspective. The paper also provides a comparison of frequentist and Bayesian coverage bands in the context of an empirical application—the former can be substantially wider than the latter.