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Point estimation in sign-restricted SVARs based on independence criteria with an application to rational bubbles

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  • Herwartz, Helmut
  • Wang, Shu

Abstract

The median and median target estimates in sign-restricted SVARs are driven by a highly informative prior for the set-identified structural parameters. This paper proposes an approach for point elicitation by minimizing the evidence against the null hypothesis of independence with respect to the orthogonalized residuals implied by the identified set. Finite sample properties of the estimator are studied in a Monte Carlo experiment. As an empirical illustration, we analyze monetary policy effects within the rational bubble model of equity valuation (Galí, 2014). The detected monetary policy shocks lead to distinct response profiles of the fundamental and bubble components of asset prices.

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  • 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).
    • Handle: RePEc:eee:dyncon:v:151:y:2023:i:c:s0165188923000362
    DOI: 10.1016/j.jedc.2023.104630
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    Cited by:

    1. Kerstin Bernoth & Helmut Herwartz & Lasse Trienens, 2023. "The Impacts of Global Risk and US Monetary Policy on US Dollar Exchange Rates and Excess Currency Returns," Discussion Papers of DIW Berlin 2037, DIW Berlin, German Institute for Economic Research.
    2. Sascha A. Keweloh & Mathias Klein & Jan Pruser, 2023. "Estimating Fiscal Multipliers by Combining Statistical Identification with Potentially Endogenous Proxies," Papers 2302.13066, arXiv.org, revised Feb 2024.

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    More about this item

    Keywords

    Structural vector autoregressions; Sign restrictions; Set identification; Impulse response functions; Independent component analysis;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • 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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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