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Sign Restrictions in Structural Vector Autoregressions: A Critical Review

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Abstract:

The paper provides a review of the estimation of structural vector autoregressions with sign restrictions. It is shown how sign restrictions solve the parametric identification problem present in structural systems but leaves the model identification problem unresolved. A market and a macro model are used to illustrate these points. Suggestions have been made on how to find a unique model. These are reviewed. An analysis is provided of whether one can recover the true impulse responses and what difficulties might arise when one wishes to use the impulse responses found with sign restrictions.

Document Type: Research Article

DOI: http://dx.doi.org/10.1257/jel.49.4.938

Publication date: December 1, 2011

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aea/jel/2011/00000049/00000004/art00002
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