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Dissecting Monetary Policy Shocks in Sign-Restricted SVAR Models

Author

Listed:
  • Hyeon-seung Huh

    (Yonsei University)

  • David Kim

    (University of Sydney)

Abstract

The use of sign restrictions to identify monetary policy shocks in structural vector autoregression (SVAR) models has garnered significant attention in recent years. In this context, we revisit two influential studies-Uhlig (2005) and Arias et al. (2019)-which offer conflicting conclusions regarding the output effects of contractionary monetary policy shocks. Our analysis seeks to uncover the underlying causes of these discrepancies and evaluate the sensitivity of the results to alternative model specifications. Specifically, we examine four key factors: (i) the influence of rotation priors on posterior inference in sign-restricted SVAR models, (ii) the robustness of findings when employing an alternative algorithm to generate large sets of responses, (iii) the sensitivity of results to variations in identifying restrictions, and (iv) the robustness of conclusions to changes in the monetary policy equation and the inclusion of the Great Moderation.

Suggested Citation

  • 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.
    • Handle: RePEc:yon:wpaper:2025rwp-245
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    More about this item

    Keywords

    Sign restrictions; Rotation matrix; monetary policy shocks; Structural vector autoregression; Baumeister and Hamilton critique;
    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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