IDEAS home Printed from https://ideas.repec.org/p/fip/fedpwp/103578.html

Inference Based on Scale, Label, and Economic Restrictions

Author

Listed:

Abstract

The results of nearly 100 prominent studies in empirical macroeconomics have been called into question by Baumeister and Hamilton (2018). We show that their concern about distributional asymmetry for a typical question of interest under a uniform prior with respect to the Haar measure is actually driven by an unacknowledged sign restriction. We also demonstrate that such a prior induces symmetric prior distributions over individual impulse responses conditional on the reduced-form parameters, or more generally when the prior over the reduced-form covariance matrix rules out correlation among the residuals, as in the typical implementation of the Minnesota prior. Furthermore, we provide a theory for avoiding the pitfalls of Baumeister and Hamilton’s critique. Key to our theory is a proposition establishing that any restriction can be decomposed into three types: scale, label, and economic. We use this theory to develop an algorithm for inference based on the unit modulus normalization that tackles a practical problem commonly faced by users of Bayesian SVAR methods.

Suggested Citation

  • Jonas E. Arias & Juan F. Rubio-Ramirez & Daniel F. Waggoner, 2026. "Inference Based on Scale, Label, and Economic Restrictions," Working Papers 26-36, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:103578
    DOI: 10.21799/frbp.wp.2026.36
    as

    Download full text from publisher

    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2026/wp26-36.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.21799/frbp.wp.2026.36?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
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Jonas E. Arias & Juan F. Rubio‐Ramírez & Daniel F. Waggoner, 2025. "Uniform Priors for Impulse Responses," Econometrica, Econometric Society, vol. 93(2), pages 695-718, March.
    3. 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.
    4. Arias, Jonas E. & Caldara, Dario & Rubio-Ramírez, Juan F., 2019. "The systematic component of monetary policy in SVARs: An agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 1-13.
    5. 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.
    6. Stock, J.H. & Watson, M.W., 2016. "Dynamic Factor Models, Factor-Augmented Vector Autoregressions, and Structural Vector Autoregressions in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 415-525, Elsevier.
    7. 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.
    8. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February.
    Full references (including those not matched with items on IDEAS)

    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. Laumer, Sebastian & Violaris, Andreas-Entony, 2024. "Unconventional monetary policy and policy foresight," Journal of Economic Dynamics and Control, Elsevier, vol. 164(C).
    2. Giacomini, Raffaella & Kitagawa, Toru & Read, Matthew, 2022. "Robust Bayesian inference in proxy SVARs," Journal of Econometrics, Elsevier, vol. 228(1), pages 107-126.
    3. Matthew Read, 2022. "The Unit-effect Normalisation in Set-identified Structural Vector Autoregressions," RBA Research Discussion Papers rdp2022-04, Reserve Bank of Australia.
    4. Sebastian K. Rüth & Wouter Van der Veken, 2023. "Monetary policy and exchange rate anomalies in set‐identified SVARs: Revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(7), pages 1085-1092, November.
    5. Matthew Read, 2023. "Estimating the Effects of Monetary Policy in Australia Using Sign‐restricted Structural Vector Autoregressions," The Economic Record, The Economic Society of Australia, vol. 99(326), pages 329-358, September.
    6. 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).
    7. Jursa, Lukáš & Janků, Jan, 2025. "From the core to the European periphery: Spillover effects of financial cycles," Emerging Markets Review, Elsevier, vol. 68(C).
    8. Fusari, Francesco, 2025. "Identifying monetary policy shocks through external constraints," Journal of Macroeconomics, Elsevier, vol. 85(C).
    9. Fusari, Francesco & Marlow, Joe & Volpicella, Alessio, 2026. "Estimation and inference of the forecast error variance decomposition for set-identified SVARs," Journal of Econometrics, Elsevier, vol. 255(C).
    10. Nguyen, Lam, 2025. "Bayesian inference in proxy SVARs with incomplete identification: Re-evaluating the validity of monetary policy instruments," Journal of Monetary Economics, Elsevier, vol. 155(C).
    11. Matthew Read, 2022. "Algorithms for inference in SVARs identified with sign and zero restrictions [Identification and inference with ranking restrictions]," The Econometrics Journal, Royal Economic Society, vol. 25(3), pages 699-718.
    12. Aymeric Ortmans, 2020. "Evolving Monetary Policy in the Aftermath of the Great Recession," Documents de recherche 20-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    13. Hyeon-seung Huh & David Kim, 2025. "Dissecting Monetary Policy Shocks in Sign-Restricted SVAR Models," Working papers 2025rwp-245, Yonsei University, Yonsei Economics Research Institute.
    14. 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).
    15. Matthew Read, 2026. "Shock-percentile Restrictions for SVARs," RBA Research Discussion Papers rdp2026-01, Reserve Bank of Australia.
    16. Jonas E. Arias & Juan F. Rubio-Ramirez & Minchul Shin, 2025. "Large SVARs," Working Papers 26-04, Federal Reserve Bank of Philadelphia.
    17. 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.
    18. Khalil, Makram & Weber, Marc-Daniel, 2021. "Chinese supply chain shocks," MPRA Paper 110356, University Library of Munich, Germany.
    19. Raffaella Giacomini & Toru Kitagawa & Matthew Read, 2021. "Identification and Inference Under Narrative Restrictions," Papers 2102.06456, arXiv.org.
    20. Nicolas Groshenny & Naveed Javed, 2023. "Dornbusch s overshooting and the systematic component of monetary policy in SOE-SVARs," TEPP Working Paper 2023-08, TEPP.

    More about this item

    Keywords

    ;
    ;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:fip:fedpwp:103578. 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: Beth Paul (email available below). General contact details of provider: https://edirc.repec.org/data/frbphus.html .

    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.