NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Pooyan Amir Ahmadi

University of Illinois at Urbana-Champaign
Department of Economics
1407 W. Gregory Dr
Urbana, IL 61801
United States

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Illinois at Urbana-Champaign

NBER Working Papers and Publications

November 2015Sign Restrictions in Bayesian FaVARs with an Application to Monetary Policy Shocks
with Harald Uhlig: w21738
We propose a novel identification strategy of imposing sign restrictions directly on the impulse responses of a large set of variables in a Bayesian factor-augmented vector autoregression. We conceptualize and formalize conditions under which every additional sign restriction imposed can be qualified as either relevant or irrelevant for structural identification up to a limiting case of point identification. Deriving exact conditions we establish that, (i) in a two dimensional factor model only two out of potentially infinite sign restrictions are relevant and (ii) in contrast, in cases of higher dimension every additional sign restriction can be relevant improving structural identification. The latter result can render our approach a blessing in high dimensions. In an empirical applicatio...
 
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