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Exact identification, robust inference, and shock masquerading in sign-restricted SVARs

Author

Listed:
  • Hyeon-seung Huh

    (Yonsei University)

  • David Kim

    (University of Sydney)

Abstract

We propose an alternative sampling scheme for sign-restricted SVARs that addresses two fundamental challenges in the standard approach: prior dependence and shock masquerading. The key idea is to utilize a direct sampling of structural coefficients in the SVAR combined with the robust inference of Giacomini and Kitagawa (2021). The scheme delivers large sets of exactly identified models, and the rotation matrix is uniquely solved via a direct, non-iterative linear algorithm. Sign restrictions are then used as a post-identification filter to ensure economic plausibility. This design is capable of eliminating prior dependence concerns, tightening the credible bounds, mitigating shock masquerading, and improving computational efficiency. We demonstrate the practical utility of the alternative sampling scheme through an application to the U.S. SVAR of Peersman (2005).

Suggested Citation

  • Hyeon-seung Huh & David Kim, 2026. "Exact identification, robust inference, and shock masquerading in sign-restricted SVARs," Working papers 2026rwp-293, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2026rwp-293
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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
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • 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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