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Identifying structural VARs from sparse narrative instruments: dynamic effects of U.S. macroprudential policies

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  • Budnik, Katarzyna
  • Rünstler, Gerhard

Abstract

We study identification in Bayesian proxy VARs for instruments that con-sist of sparse qualitative observations indicating the signs of shocks in specific periods. We propose the Fisher discriminant regression and a non-parametric sign concordance criterion as two alternative methods for achieving correct inference in this case. The former represents a minor deviation from a standard proxy VAR, whereas the non-parametric approach builds on set identification. Our application to U.S. macroprudential policies finds persistent declines in credit volumes and house prices together with moderate declines in GDP and inflation and a widening of corporate bond spreads after a tightening of capital requirements or mortgage underwriting standards. JEL Classification: C32, E44, G38

Suggested Citation

  • Budnik, Katarzyna & Rünstler, Gerhard, 2020. "Identifying structural VARs from sparse narrative instruments: dynamic effects of U.S. macroprudential policies," Working Paper Series 2353, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20202353
    Note: 1355359
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    Cited by:

    1. Raffaella Giacomini & Toru Kitagawa & Matthew Read, 2021. "Identification and Inference Under Narrative Restrictions," Papers 2102.06456, arXiv.org.
    2. Boer, Lukas & Lütkepohl, Helmut, 2021. "Qualitative versus quantitative external information for proxy vector autoregressive analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 127(C).
    3. Serdar Kabaca & Kerem Tuzcuoglu, 2023. "Supply Drivers of US Inflation Since the COVID-19 Pandemic," Staff Working Papers 23-19, Bank of Canada.
    4. Fernandez-Gallardo, Alvaro, 2023. "Preventing financial disasters: Macroprudential policy and financial crises," European Economic Review, Elsevier, vol. 151(C).
    5. Budnik, Katarzyna, 2020. "The effect of macroprudential policies on credit developments in Europe 1995-2017," Working Paper Series 2462, European Central Bank.
    6. Venditti, Fabrizio & Veronese, Giovanni, 2020. "Global financial markets and oil price shocks in real time," Working Paper Series 2472, European Central Bank.
    7. Christis Katsouris, 2023. "Structural Analysis of Vector Autoregressive Models," Papers 2312.06402, arXiv.org, revised Feb 2024.
    8. Alvaro Fernandez-Gallardo & Ivan Paya, 2020. "Macroprudential Policy in the Euro Area," Working Papers 307121127, Lancaster University Management School, Economics Department.
    9. Boucherie, Louis & Budnik, Katarzyna & Panos, Jiri, 2022. "Looking at the evolution of macroprudential policy stance: A growth-at-risk experiment with a semi-structural model," Occasional Paper Series 301, European Central Bank.

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    More about this item

    Keywords

    Bayesian proxy VAR; capital requirements; discriminant analysis; mortgage underwriting standards; sign concordance;
    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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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