NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Shock Restricted Structural Vector-Autoregressions

Sydney C. Ludvigson, Sai Ma, Serena Ng

NBER Working Paper No. 23225
Issued in March 2017, Revised in September 2019
NBER Program(s):Asset Pricing Program, Economic Fluctuations and Growth Program, The Monetary Economics Program

It is well known that the covariance structure of the data alone is not enough to identify an SVAR, and the conventional approach is to impose restrictions on the parameters of the model based on a priori theoretical considerations. This paper suggests that much can be gained by requiring the properties of the identified shocks to agree with major economic events that have been realized. We first show that even without additional restrictions, the data alone are often quite informative about the quantitatively important shocks that have occurred in the sample. We propose shrinking the set of solutions by imposing two types of inequality constraints on the shocks. The first restricts the sign and possibly magnitude of the shocks during unusual episodes in history. The second restricts the correlation between the shocks and variables external to the SVAR. The methodology provides a way to assess the validity of assumptions imposed as equality constraints. The effectiveness and limitations of this approach are exemplified with three applications.

download in pdf format
   (967 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23225

Users who downloaded this paper also downloaded* these:
Das, Duffie, Kapadia, and Saita w11961 Common Failings: How Corporate Defaults are Correlated
Ahn, Kaplan, Moll, Winberry, and Wolf w23494 When Inequality Matters for Macro and Macro Matters for Inequality
Abraham, Spletzer, and Stewart Divergent Trends in Alternative Wage Series
Adelino, Schoar, and Severino w23502 Dynamics of Housing Debt in the Recent Boom and Great Recession
Duflo w23213 The Economist as Plumber
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us