Quantitative Economics: Nov, 2018, Volume 9, Issue 3

Inference for VARs identified with sign restrictions

Eleonora Granziera, Hyungsik Roger Moon, Frank Schorfheide

There is a fast growing literature that set‐identifies structural vector autoregressions (SVARs) by imposing sign restrictions on the responses of a subset of the endogenous variables to a particular structural shock (sign‐restricted SVARs). Most methods that have been used to construct pointwise coverage bands for impulse responses of sign‐restricted SVARs are justified only from a Bayesian perspective. This paper demonstrates how to formulate the inference problem for sign‐restricted SVARs within a moment‐inequality framework. In particular, it develops methods of constructing confidence bands for impulse response functions of sign‐restricted SVARs that are valid from a frequentist perspective. The paper also provides a comparison of frequentist and Bayesian coverage bands in the context of an empirical application—the former can be substantially wider than the latter.
Bayesian inference frequentist inference set‐identified models sign restrictions structural VARs C1 C32

Supplemental Material