Discussion paper

DP8432 Inference for VARs Identified with Sign Restrictions

There is a fast growing literature that partially 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). To date, the methods that have been used are only justified from a Bayesian perspective. This paper develops methods of constructing error bands for impulse response functions of sign-restricted SVARs that are valid from a frequentist perspective. We also provide a comparison of frequentist and Bayesian error bands in the context of an empirical application--the former can be twice as wide as the latter.


Schorfheide, F, H Moon, E Granziera and M Lee (2011), ‘DP8432 Inference for VARs Identified with Sign Restrictions‘, CEPR Discussion Paper No. 8432. CEPR Press, Paris & London. https://cepr.org/publications/dp8432