IDEAS home Printed from https://ideas.repec.org/a/eee/jmacro/v61y2019ic6.html
   My bibliography  Save this article

An IV framework for combining sign and long-run parametric restrictions in SVARs

Author

Listed:
  • Fisher, Lance A.
  • Huh, Hyeon-seung

Abstract

This paper derives the sufficient conditions on the coefficients in a system of structural equations which imply the long-run exclusion restrictions on the impulse responses which are used to identify the model. A recent contribution shows a method to impose the sufficient conditions on the structural equations and to estimate them by instrumental variables (IV). This method has the advantage that it can be combined with a new method for sign restrictions which can be cast in an IV framework. This paper shows that the sufficient conditions which imply the two long-run exclusion restrictions in a SVAR taken from the literature imply other long-run exclusion restrictions as well which are not part of the identifying assumptions. In this case, this method is not suitable. This paper shows how to impose the two long-run exclusion restrictions directly on the structural equations of the model on each draw in sign restrictions which utilizes the IV method.

Suggested Citation

  • Fisher, Lance A. & Huh, Hyeon-seung, 2019. "An IV framework for combining sign and long-run parametric restrictions in SVARs," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    • Handle: RePEc:eee:jmacro:v:61:y:2019:i:c:6
    DOI: 10.1016/j.jmacro.2019.103125
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0164070418301708
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmacro.2019.103125?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin Eichenbaum & Charles L. Evans, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 975-1009.
    2. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
    3. S. Levtchenkova & A. R. Pagan & J. C. Robertson, 1998. "Shocking Stories," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 507-532, December.
    4. Renée Fry & Adrian Pagan, 2011. "Sign Restrictions in Structural Vector Autoregressions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 938-960, December.
    5. Hilde C. Bjørnland & Jørn I. Halvorsen, 2014. "How does Monetary Policy Respond to Exchange Rate Movements? New International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(2), pages 208-232, April.
    6. Juan F. Rubio-Ramírez & Daniel F. Waggoner & Tao Zha, 2010. "Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(2), pages 665-696.
    7. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 185-207.
    8. Bjørnland, Hilde C., 2009. "Monetary policy and exchange rate overshooting: Dornbusch was right after all," Journal of International Economics, Elsevier, vol. 79(1), pages 64-77, September.
    9. Lance A. Fisher & Hyeon‐Seung Huh & Adrian R. Pagan, 2016. "Econometric Methods for Modelling Systems With a Mixture of i(1) and i(0) Variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(5), pages 892-911, August.
    10. Haberis, Alex & Sokol, Andrej, 2014. "A procedure for combining zero and sign restrictions in aVAR-identification scheme," LSE Research Online Documents on Economics 58077, London School of Economics and Political Science, LSE Library.
    11. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
    12. Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 207-244, December.
    13. William D. Lastrapes, 1998. "The Dynamic Effects Of Money: Combining Short-Run And Long-Run Identifying Restrictions Using Bayesian Techniques," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 588-599, November.
    14. Fisher, Lance A. & Huh, Hyeon-seung, 2016. "Monetary policy and exchange rates: Further evidence using a new method for implementing sign restrictions," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 177-191.
    15. Christiane Baumeister & Luca Benati, 2013. "Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 165-212, June.
    16. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    17. Christiane Baumeister & James D. Hamilton, 2015. "Sign Restrictions, Structural Vector Autoregressions, and Useful Prior Information," Econometrica, Econometric Society, vol. 83(5), pages 1963-1999, September.
    18. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 111-156, National Bureau of Economic Research, Inc.
    19. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    20. Renee Fry & Adrian Pagan, 2005. "Some Issues In Using Vars For Macroeconometric Research," CAMA Working Papers 2005-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    21. Luca Benati & Thomas A. Lubik, 2014. "Sales, Inventories And Real Interest Rates: A Century Of Stylized Facts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(7), pages 1210-1222, November.
    22. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
    23. Jonas E. Arias & Juan F. Rubio‐Ramírez & Daniel F. Waggoner, 2018. "Inference Based on Structural Vector Autoregressions Identified With Sign and Zero Restrictions: Theory and Applications," Econometrica, Econometric Society, vol. 86(2), pages 685-720, March.
    24. Benati, Luca, 2015. "The long-run Phillips curve: A structural VAR investigation," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 15-28.
    25. Kilian,Lutz & Lütkepohl,Helmut, 2018. "Structural Vector Autoregressive Analysis," Cambridge Books, Cambridge University Press, number 9781107196575.
    26. Fisher, Lance A. & Huh, Hyeon-Seung & Summers, Peter M., 2000. "Structural Identification of Permanent Shocks in VEC Models: A Generalization," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 53-68, January.
    27. Sam Ouliaris & Adrian Pagan, 2016. "A Method for Working with Sign Restrictions in Structural Equation Modelling," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(5), pages 605-622, October.
    28. Scholl, Almuth & Uhlig, Harald, 2008. "New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates," Journal of International Economics, Elsevier, vol. 76(1), pages 1-13, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bünyamin Fuat Yıldız & Korhan K. Gökmenoğlu & Wing-Keung Wong, 2022. "Analysing Monetary Policy Shocks by Sign and Parametric Restrictions: The Evidence from Russia," Economies, MDPI, vol. 10(10), pages 1-16, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fisher, Lance A. & Huh, Hyeon-seung, 2016. "Monetary policy and exchange rates: Further evidence using a new method for implementing sign restrictions," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 177-191.
    2. Baumeister, Christiane & Hamilton, James D., 2020. "Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 109(C).
    3. Fisher Lance A. & Huh Hyeon-seung, 2020. "Combining sign and parametric restrictions in SVARs by utilising Givens rotations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(3), pages 1-19, June.
    4. Lance A. Fisher & Hyeon-seung Huh, 2018. "Combining sign and parametric restrictions in SVARs by Givens Rotations," Working papers 2018rwp-122, Yonsei University, Yonsei Economics Research Institute.
    5. Cross, Jamie, 2019. "On the reduced macroeconomic volatility of the Australian economy: Good policy or good luck?," Economic Modelling, Elsevier, vol. 77(C), pages 174-186.
    6. Baumeister, Christiane & Hamilton, James D., 2021. "Reprint: Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 114(C).
    7. Britta Gehrke & Fang Yao, 2016. "Persistence and volatility of real exchange rates: the role of supply shocks revisited," Reserve Bank of New Zealand Discussion Paper Series DP2016/02, Reserve Bank of New Zealand.
    8. Helene Olsen & Harald Wieslander, 2020. "The Impact of Monetary Policy on Leading Variables for Financial Stability in Norway," Working Papers No 02/2020, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    9. Gehrke, Britta & Yao, Fang, 2017. "Are supply shocks important for real exchange rates? A fresh view from the frequency-domain," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 99-114.
    10. Baumeister, Christiane & Hamilton, James D., 2018. "Inference in structural vector autoregressions when the identifying assumptions are not fully believed: Re-evaluating the role of monetary policy in economic fluctuations," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 48-65.
    11. Robin Braun & Ralf Brüggemann, 2017. "Identification of SVAR Models by Combining Sign Restrictions With External Instruments," Working Paper Series of the Department of Economics, University of Konstanz 2017-07, Department of Economics, University of Konstanz.
    12. Klug, Thorsten & Mayer, Eric & Schuler, Tobias, 2022. "The corporate saving glut and the current account in Germany," Journal of International Money and Finance, Elsevier, vol. 121(C).
    13. Herwartz, Helmut & Wang, Shu, 2023. "Point estimation in sign-restricted SVARs based on independence criteria with an application to rational bubbles," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    14. Rüth, Sebastian K., 2020. "Shifts in monetary policy and exchange rate dynamics: Is Dornbusch's overshooting hypothesis intact, after all?," Journal of International Economics, Elsevier, vol. 126(C).
    15. Juvenal, Luciana, 2011. "Sources of exchange rate fluctuations: Are they real or nominal?," Journal of International Money and Finance, Elsevier, vol. 30(5), pages 849-876, September.
    16. Skrobotov, Anton (Скроботов, Антон) & Turuntseva, Marina (Турунцева, Марина), 2015. "Theoretical Aspects of Modeling of the SVAR [Теоретические Аспекты Моделирования Svar]," Published Papers mak8, Russian Presidential Academy of National Economy and Public Administration.
    17. Yasuharu Iwata & Hirokuni IIboshi, 2023. "The Nexus between Public Debt and the Government Spending Multiplier: Fiscal Adjustments Matter," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(4), pages 830-858, August.
    18. Jääskelä, Jarkko P. & Jennings, David, 2011. "Monetary policy and the exchange rate: Evaluation of VAR models," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1358-1374.
    19. Hyeon-seung Huh & Won Soon Kwon, 2015. "Sources of Fluctuations in the Real Exchange Rates and Trade Balances of the G-7: A Sign Restriction VAR Approach," Review of International Economics, Wiley Blackwell, vol. 23(4), pages 715-737, September.
    20. Elekdag, Selim & Han, Fei, 2015. "What drives credit growth in emerging Asia?," Journal of Asian Economics, Elsevier, vol. 38(C), pages 1-13.

    More about this item

    Keywords

    Structural vector-autoregression; Sign restrictions; Long-run parametric restrictions; Instrumental variables; Generated coefficients; Algorithms;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:61:y:2019:i:c:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622617 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.