Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications

Arias, Jonas E.; Rubio-Ramı́rez, Juan Francisco; Waggoner, Daniel F.

doi:10.2139/ssrn.2580264

Cited by 119 publications

(168 citation statements)

References 22 publications

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“…12 This identification strategy differs from the pure sign restriction identification approach, in that both of our identification schemes identify a single structural VAR specification, rather than a set of models (Caldara and Kamps, 2012;Arias et al, 2013).…”

Section: Identification and Estimationmentioning

confidence: 99%

The Macroeconomic Impact of Financial and Uncertainty Shocks

Caldara¹,

Fuentes-Albero²,

Gilchrist³

et al. 2016

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We are especially grateful to Johannes Pfeifer and Jim Stock for detailed comments and suggestions. We also thank Nicholas Bloom, Robert Kollman, Eric Leeper, Tommaso Monacelli, Werner Roeger, and participants at numerous seminars and conferences for helpful comments. George Gu, Edward Kim, Shaily Patel, and Rebecca Zhang provided outstanding research assistance at various stages of this project. All errors and omissions are our own responsibility. The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System, anyone else associated with the Federal Reserve System, or the National Bureau of Economic Research.NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.© 2016 by Dario Caldara, Cristina Fuentes-Albero, Simon Gilchrist, and Egon Zakrajšek. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. ABSTRACTThe extraordinary events surrounding the Great Recession have cast a considerable doubt on the traditional sources of macroeconomic instability. In their place, economists have singled out financial and uncertainty shocks as potentially important drivers of economic fluctuations. Empirically distinguishing between these two types of shocks, however, is difficult because increases in economic uncertainty are strongly associated with a widening of credit spreads, an indication of a tightening in financial conditions. This paper uses the penalty function approach within the SVAR framework to examine the interaction between financial conditions and economic uncertainty and to trace out the impact of these two types of shocks on the economy. The results indicate that (1) financial shocks have a significant adverse effect on economic outcomes and that such shocks were an important source of cyclical fluctuations since the mid-1980s; (2) uncertainty shocks, especially those implied by uncertainty proxies that do not rely on financial asset prices, are also an important source of macroeconomic disturbances; and (3) uncertainty shocks have an especially negative economic impact in situations where they elicit a concomitant tightening of financial conditions. Evidence suggests that the Great Recession was likely an acute manifestation of the toxic interaction between uncertainty and financial shocks.

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Section: Identification and Estimationmentioning

confidence: 99%

The Macroeconomic Impact of Financial and Uncertainty Shocks

Caldara¹,

Fuentes-Albero²,

Gilchrist³

et al. 2016

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show abstract

“…With the characterization at hand, we draw from the posterior distribution of the structural parameters that satisfies the sign and zero restrictions using the algorithm described in Arias, Rubio-Ramirez, and Waggoner (2014), which we reproduce below.…”

Section: Set Identification By Sign and Zero Restrictions On Amentioning

confidence: 99%

“…16 And we restrict a 0,51 > 0 to ensure that we satisfy the regularity conditions for f (A 0 , A + ) specified in Arias, Rubio-Ramirez, and Waggoner (2014).…”

Section: Money Rulesmentioning

confidence: 99%

“…They combine zero restrictions with empirically plausible bounds on the output elasticities of fiscal variables. Arias, Rubio-Ramirez, and Waggoner (2014) develop the theoretical foundation to identify SVARs by jointly imposing sign and zero restrictions extending the work of Faust (1998), Uhlig (2005), and Rubio-Ramírez, Waggoner, and Zha (2010). They apply their methodology to revisit the identification of optimism shocks in Beaudry, Nam, and Wang (2011) and the identification of fiscal shocks in Mountford and Uhlig (2009).…”

Section: Introductionmentioning

confidence: 99%

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The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure

Arias

Caldara

Rubio-Ramı́rez

2015

internationalfinance

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“…The second challenge, the identification of shocks, is done by using the method proposed by Arias et al (2014) to implement zero-as well as sign restrictions to restrict the response of observed variables to the shocks. The zero restrictions are established to distinguish three different sets of shocks, a block of foreign shocks influencing all variables on impact, a block of domestic macroeconomic shocks not influencing foreign variables on impact but all domestic variables in the model and a block of financial shocks only influencing fast moving, financial variables.…”

Section: Introductionmentioning

confidence: 99%

Credit cycles and real activity: the Swiss case

Bäurle

Scheufele

2018

Empir Econ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper analyzes credit supply and demand shocks for the Swiss economy. Using a medium scale BVAR model we are able to take into account various interactions of housing prices, credit supply and demand, interest rates and real activity measures. To identify meaningful economic shocks, we used a combination of zero and sign restrictions. Generally, the empirical analysis implies that the effects of credit supply and demand shocks on real activity are limited, only playing a substantive role in specific episodes. Furthermore, the credit supply shocks (i.e. bank lending shocks and monetary policy shocks) explain a large fraction of housing price and credit fluctuations. Indeed, they tend to be more important for housing prices than housing demand shocks. There is further evidence that shocks related to credit supply, monetary policy shocks dominate bank lending shocks. For Switzerland as a small open economy it turns out to be very crucial to take into account foreign demand which is able to explain a substantial variation in real and financial variables. Terms of use: Documents in EconStor mayJEL classification: C11, C32, E30, E44, E51, E52

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Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications

Cited by 119 publications

References 22 publications

The Macroeconomic Impact of Financial and Uncertainty Shocks

The Macroeconomic Impact of Financial and Uncertainty Shocks

The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure

Credit cycles and real activity: the Swiss case

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