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Identifying SVARs with Sign Restrictions and Heteroskedasticity

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  • Srecko Zimic

Abstract

Develop new identification method for SVARs and study the effects of monetary policy shocks. This paper introduces a new method to identify structural vector autoregres- sions. The method combines the sign restrictions method with the identification through heteroskedasticity. I show that different volatility regimes of structural shocks can be used to strengthen the partial identification through sign restric- tions. The method is applied to the identification of the monetary policy shocks. The standard sign restriction method is inconclusive about the sign of the response of output following a monetary policy shock. On the other hand, using the pro- posed method, the identified monetary policy shock lowers output significantly as predicted by theory.

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  • Srecko Zimic, 2017. "Identifying SVARs with Sign Restrictions and Heteroskedasticity," EcoMod2017 10251, EcoMod.
    • Handle: RePEc:ekd:010027:10251
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    1. 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.
    2. 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.
    3. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 869-902.
    4. 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.
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    6. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
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