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Shock-percentile Restrictions for SVARs

Author

Listed:
  • Matthew Read

    (Reserve Bank of Australia)

Abstract

I propose identifying structural vector autoregressions using 'shock-percentile' restrictions. These restrictions require the realisation of a structural shock in a selected episode to lie in the tail of the shock's historical distribution, representing the belief that a relatively large shock has occurred. I argue that shock-percentile restrictions are an attractive alternative to imposing numeric bounds on shock magnitudes, which are difficult to credibly elicit. Simulations demonstrate the potential for shock-percentile restrictions to provide identifying information. In two empirical applications, I exploit shock-percentile restrictions to disentangle the relationship between uncertainty and real activity, and to sharpen identification of the macroeconomic effects of US monetary policy.

Suggested Citation

  • Matthew Read, 2026. "Shock-percentile Restrictions for SVARs," RBA Research Discussion Papers rdp2026-01, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2026-01
    DOI: 10.47688/rdp2026-01
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    References listed on IDEAS

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    Keywords

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    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
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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