Algorithm-Driven SVARs: Navigating the Wilderness of Big Data
Working Paper 35604
DOI 10.3386/w35604
Issue Date
Every SVAR result is conditional on two choices: the restrictions that identify the shock and the variables on which they operate. The literature disciplines the first; the second is chosen by hand. We develop a Bayesian methodology that constructs information sets, uses an out-of-sample criterion, and retains the largest system it admits. Under recursive identification, output rises with housing production rather than household credit alone. For monetary policy, an anchor-free joint Bayesian proxy SVAR with multiple instruments strengthens the credit spread channel. A core system augmented with the selected corporate spread identifies expected default risk as a potent transmission margin.
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Copy CitationYucheng Yang and Tao Zha, "Algorithm-Driven SVARs: Navigating the Wilderness of Big Data," NBER Working Paper 35604 (2026), https://doi.org/10.3386/w35604.Download Citation
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